PRAYERS

[MR. SPEAKER in the Chair]

The House met at half-past Two o'clock

PRIVATE BUSINESS

SCRABSTER HARBOUR ORDER CONFIRMATION BILL

Considered; to be read the Third time tomorrow.

Oral Answers to Questions — FOREIGN AND COMMONWEALTH AFFAIRS

Nicaragua

Mr. Tony Banks: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement about the recent visit of the President of Nicaragua.

Mr. Loyden: To ask the Secretary of State for Foreign and Commonwealth Affairs when he last met the President of Nicaragua; and what subjects were discussed.

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Tim Eggar): President Ortega visited the United Kingdom from 6 to 8 May in the course of an extensive European tour. My right hon. Friend the Prime Minister met him on 8 May. My right hon. and learned Friend the Secretary of State and I saw Foreign Minister d'Escoto on the same day.

Mr. Banks: May I through you, Mr. Speaker, thank all hon. Members for the warm and courteous welcome they gave President Ortega on Monday, which was in stark contrast to the ill-advised, offensive, abusive and graceless way in which the Prime Minister treated him? As she always speaks on Nicaragua from a position of profound ignorance, will she be accepting the invitation extended by President Ortega to send a Government delegation to Nicaragua to study the situation there prior to next year's election?

Mr. Eggar: My right hon. Friend the Prime Minister made it clear during the President's visit that our attitude to Nicaragua will continue to be based on our assessment of its moves to genuine democracy, its determination to remove foreign advisers, its determination or otherwise to reduce its armed forces and its determination to stop the destabilisation of neighbouring countries. Those are exactly the four criteria by which we made it clear that we would judge Nicaragua when my right hon. and learned Friend met its vice-president over three years ago.

Mr. Loyden: Instead of using language that has been used by Foreign Office Ministers since time immemorial and criticising its Government without understanding

what is going on, why does not the Minister think more positively and send a delegation to Nicaragua to see developments at first hand?

Mr. Eggar: We have an excellent embassy and chargé d'affaires who regularly report what is happening Nicaragua. The hon. Gentleman appears to be unaware that all Nicaraguan opposition parties from the far Left to the far Right have condemned the changes to the electoral law that were introduced by the Sandinistas on 5 May, of which President Ortega appears to be unaware.

Mr. Ashby: As someone who is not profoundly ignorant of Nicaragua and has seen its steady deterioration over the past four years as a result of the nature of its Government, will my hon. Friend welcome steps towards further elections and explain to President Ortega some of the prerequisites for fair and free elections? It is no good having an Sandinistan army or police force, and it is no good local committees run by Sandinistas distributing food to everyone, expecting them to believe that there will be fair and free elections.

Mr. Eggar: I agree with my hon. Friend, who echoes the points made by President Arias of Costa Rica, among others. The present Nicaraguan constitution ensures that the armed forces and apparatus of the state owe allegiance not to the country but to the Sandinista party.

Mr. Robert G. Hughes: Does my hon. Friend agree that there is an interesting contrast between the attitude of the Opposition in this House, who seem to regard Nicaragua as a gentle democracy, and the fact that in Nicaragua, the Sandinista Government do not allow the Opposition free and fair access to the media?

Mr. Eggar: I agree completely with my hon. Friend. The Sandinista party controls all the television stations.

Mr. Foulkes: Why do not the Government for once use their undoubted influence with the United States in a positive way and persuade the United States to use the money that it is planning to give to terrorists to resettle people in Nicaragua for the free and fair elections to be held in February 1990? Why are our Government the only Government in Europe not attending the Stockholm conference on aid to Nicaragua, which is beleaguered by war and the recent hurricane? Why will the Minister not consider visiting Nicaragua to find out the truth about it, instead of hearing the ignorance displayed by the Prime Minister at her meeting with Daniel Ortega?

Mr. Eggar: We are not attending the Stockholm conference because we believe that the economic collapse which is a feature of Nicaragua at present was brought about by the Sandinista regime and we see no reason to provide additional aid. As the hon. Gentleman knows, we have provided humanitarian aid to assist with the effects of the hurricane. We support, of course, the new bipartisan policy of the United States.

President Bush

Mr. Couchman: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will report on the outcome of his recent meeting with President Bush.

The Secretary of State for Foreign and Commonwealth Affairs (Sir Geoffrey Howe): When I met President Bush in


Washington on 17 April, we discussed a number of current issues including East-West relations, short-range nuclear forces, the middle east, Lebanon, southern Africa and Latin America.

Mr. Couchman: I thank my right hon. and learned Friend for that answer. In the course of his wide-ranging discussions, did he have an opportunity to discuss the initiative by President Bush in seeking to control narcotics, especially in relation to south American countries, and did he discuss the possibilities of further co-operative action between our two countries on this serious problem?

Sir Geoffrey Howe: We certainly welcome the initiative of President Bush to which my hon. Friend refers. As he knows, it is an accepted part of our common policy for co-operation that we are engaged in a partnership in the worldwide war against drugs, with particular reference to Latin America. The first agreement, which I signed myself, for bilateral co-operation for the tracing, freezing and confiscation of the proceeds of drug transactions, was signed with the United States and came into force last night.

Mr. Denzil Davies: During the discussions on short-range and battlefield nuclear weapons, did the Foreign Secretary explain the British Government's policy? Is it the British Government's view that short-range and battlefield nuclear weapons are necessary to counter Soviet conventional superiority and would they still be necessary if there were parity of conventional forces?

Sir Geoffrey Howe: It is the view of the whole Alliance that we need to maintain short-range nuclear weapons, among others, in a capable and up-to-date condition. The Alliance agrees in rejecting a third zero and that remains the position in all circumstances.

Sir Peter Blaker: Can my right hon. and learned Friend say whether President Bush shares the view that there is one question in East-West relations that is even more important than disarmament—whether the Soviet Union has abandoned its desire to expand at the expense of other countries and to dominate them? Does he agree that that has not yet been established?

Sir Geoffrey Howe: The President of the United States and his Administration, together with the other members of the NATO Alliance, share the view that it is necessary for the Alliance to maintain a firm and effective defensive capability against the risks of deployment or the threat of the use of military resources, and one cannot regard that threat as having come to an end.

Mr. Alex Carlile: Are we to accept reports that President Bush believes that the cold war is now over? If not, in the light of the Foreign Secretary's meeting with Mr. Bush, will he tell us how he would apportion blame for the continuance of the cold war?

Sir Geoffrey Howe: The continuance of the tension, which gives the North Atlantic Alliance its continuing purpose, is due to the overwhelming preponderance of forces, and the capability to threaten the use of those forces, in Europe among other places. The fact that most of the countries of eastern Europe are still host to Soviet

occupation forces is only one of many reasons for thinking that there are still powerful reasons for being apprehensive about the security of western Europe.

Refuseniks

Mr. Brandon-Bravo: To ask the Secretary of State for Foreign and Commonwealth Affairs what recent representations he has made on the current position of refuseniks in the Soviet Union; and if he will make a statement.

The Minister of State, Foreign and Commonwealth Office (Mr. William Waldegrave): My right hon. and learned Friend has raised the problem of refuseniks with Mr. Shevardnadze on three separate occasions this year, most recently during Mr. Gorbachev's visit. The Soviet authorities have been left in no doubt that the problem of long-term refuseniks will continue to cast a shadow over Anglo-Soviet relations until a satisfactory and lasting solution is reached.

Mr. Brandon-Bravo: I welcome my hon. Friend's effort in this regard and I acknowledge that he has had many successes. Is it not true, however, that, much as we hope and pray that Mr. Gorbachev will turn out to be a true reformer, the Soviet concept of human rights—the right to believe, to practise one's own religion and even to emigrate—is a different concept from ours in the West? Given the difference, should not we continue to be careful to try to match practice and theory, to hope for the future and to press on with the campaign?

Mr. Waldegrave: My hon. Friend is right. It would be churlish not to acknowledge that the system is being operated more humanely than it was, but it is the system that is wrong. People's rights should not depend upon the intervention of my right hon. and learned Friend, myself or Opposition Members but on an independent judiciary and law in the Soviet Union.

Mr. Sumberg: I pay tribute to the work of my hon. Friend and the Government in supporting the refuseniks in the Soviet Union. May I raise with my hon. Friend the case of George Belitsky of Vilnius, who has been waiting for his visa since 1980? His wife and two sons, one of whom I met this afternoon, are now free, but he still waits in vain. Will my hon. Friend see what he can do to help in this case? [Interruption.]

Mr. Waldegrave: I am sorry that Opposition Members do not seem to be taking the question seriously, as some of them have an honourable record in fighting for individual cases. I shall certainly look into the case that my hon. Friend mentioned. In New York, Mr. Gorbachev said that secrecy would not be used in future to block exit permits, but that is not what is happening in individual cases, I am afraid. It is still being used in far too many cases.

Pakistan

Mr. William Powell: To ask the Secretary of State for Foreign and Commonwealth Affairs when he last met the Prime Minister of Pakistan; and what matters were discussed.

Sir Geoffrey Howe: I met Miss Bhutto on 27 March in Islamabad. I congratulated her on her election and the restoration of democracy in Pakistan. We discussed a wide


range of issues including Anglo-Pakistan relations, Afghanistan and other developments in the region, and the possibility of Pakistan's re-entry to the Commonwealth.

Mr. Powell: Did my right hon. and learned Friend manage to impress upon the Prime Minister of Pakistan the undesirability of the continuation of the civil war in Afghanistan? The people who are suffering now are the population of that unfortunate and unhappy country. Did my right hon. and learned Friend agree any proposals with the Prime Minister of Pakistan involving our assistance in putting an end to that civil war?

Sir Geoffrey Howe: The Prime Minister of Pakistan has good reason to be more aware than almost anyone of the penalties imposed upon her country and on Afghanistan as well as the wider region, by the continuation of the conflict in Afghanistan. She and her Government wish nothing better than to see the establishment of conditions in Afghanistan that enable the millions of refugees to return to their own country. She and her country realise the importance of securing the establishment in Afghanistan of a broad-based Government that is truly representative of the people of Afghanistan. That is the way to bring the conflict to an end.

Mr. Worthington: In the continuing discussions with the Prime Minister of Pakistan, will the Foreign Secretary initiate further discussions about the success of the project in the Dir district in the north-west of Pakistan which is concerned with the reduction of the heroin trade from that area and with rural development and crop substitution? That is the kind of aid that we can give, which we give in too stinting a way at the moment. I am conscious of the success of that project and I am interested to learn whether the Foreign Secretary intends to extend such projects both in Pakistan and India to which I gather the focus of the heroin trade has moved.

Sir Geoffrey Howe: The hon. Gentleman is right to draw attention to the importance of co-operation against the drugs trade. We sustain that co-operation with the Governments of India and Pakistan. Miss Bhutto herself has made a firm public commitment to continuing a tough stance on narcotics, and has recently appointed a Minister of State to deal with that subject. We help to fund the crop substitution programme at Dir in the north-west frontier province. We would look sympathetically at any further Pakistani request for help of that kind.

Mr. Wilkinson: Did my right hon. and learned Friend discuss with the Prime Minister of Pakistan the dispute in Kashmir? It would be a development of the utmost gravity for Pakistan if, in addition to extreme instability in Afghanistan, there were to be conflict in Kashmir.

Sir Geoffrey Howe: We certainly discussed the importance of improvements in relations between India and Pakistan. There was no need for me to emphasise to Miss Bhutto the need for increased co-operation. I welcomed several positive steps in that direction, including, for example, the agreement not to attack each other's nuclear installations and the successful meeting between the two Prime Ministers in December of last year. In that context, we believe that the same method should be adopted towards the possible resolution of the Kashmir dispute.

Mrs. Clwyd: Did the Secretary of State discuss the continuing plight of the Kurds within Iraq and the renewed threat forcibly to deport 20,000 of them? If he did not discuss that matter, will he take it up with the Iraqi embassy and with the Government—

Mr. Speaker: Order. that question is somewhat wide of the topic, which is Pakistan.

Hon. Members: Answer.

Namibia

Mr. Pike: To ask the Secretary of State for Foreign and Commonwealth Affairs what representations he has made to the South African Government and the United Nations for the publication of a full electoral roll prior to the forthcoming elections in Namibia.

The Minister of State, Foreign and Commonwealth Office (Mrs. Lynda Chalker): We have made no specific representations on this subject. The United Nations and the South African Government are both well aware of our concern that the elections in Namibia should be free and fair, as set out in the United Nations plan for Namibian independence.

Mr. Pike: I am sure that the Foreign Minister will recognise the problems if those elections are carried out on lines identical to those of the 1978 South African-controlled elections in Namibia, which the Government have repeatedly condemned as a sham. Does she recognise that representations must be made by 16 May, to ensure that the credibility of the United Nations is maintained and that the people of Namibia accept that the elections that are to take place are genuine, free and democratic?

Mrs. Chalker: I understand what the hon. Gentleman has said. However, the election arrangements are a matter for the United Nations and the South African Administrator General. We have made both of them well aware of our concern that the election should be free and fair, as set out in the United Nations plan. The draft registration of voters proclamation was published on 24 April, and comments and representations on the draft have been invited from the interested parties.
We note considerable differences between what was discussed way back in 1978 and what is now under discussion, particularly that there is a minimum voting age of 18, and that is certainly a step forward. I agree with the hon. Gentleman that it will need close and constant supervision by the United Nations, and I am glad to say that that is well recognised both in New York and by the special representative in Windhoek.

Mr. Cyril D. Townsend: Does my right hon. Friend agree that, sadly, it is all too clear that, because of cost, UNTAG was set up with too few soldiers and that one possibility is that, in the long run, the cost will be greater? Will she confirm that she is still prepared to consider increasing the size of that force and that British troops might be used in such an endeavour?

Mrs. Chalker: We must take careful note of what members of the United Nations on the ground are saying. Cedric Thornberry made it quite clear that, until the full deployment which is taking place has been made, it is not the time to consider additional personnel. Now that armed incidents are reduced, that may not be necessary.


However, as I have said on many occasions, if the United Nations Secretary-General goes to the Security Council to ask for additional personnel, we stand ready to supply them. In fact, we were asked for 10 additions to the signals unit that Britain has already sent, and those 10 will join their fellows, who are already doing excellent work in Namibia.

Mr. Robert Hughes: Does the Minister agree that there is great concern that South Africa is dominating the agenda for the implementation of UN resolution 435? As there have been severe hiccups, which we certainly hope will not be repeated, will the right hon. Lady accept that, in any future discussions about the preparations for the supervision of free and fair elections and law and order, SWAPO should be included as a free and equal partner in any discussions, instead of its views being put secondhand by third parties?

Mrs. Chalker: I believe that it is for all parties to resolution 435 to ensure that the December agreements and the United Nations plan are fully implemented. That means dealing carefully with the situation as it occurs, which is what the United Nations special representative on the ground is there to do. Not only do he and the Administrator General have to carry out their commitments under the UN plan, they must proceed with the refugee work. The British Government have given £500,000 to help in the return to Namibia of those Namibian refugees, which, indeed, will need to be handled carefully.
Provided that SWAPO remains north of the 16th parallel and that it keeps in communication with the United Nations, there will be far fewer problems than if it makes incursions and excursions that can cause only problems to the peace plan.

Mr. Lester: I have listened carefully to the remarks of my right hon. Friend about UNTAG and the necessary reinforcements. Clearly, the role of the police will be critical in reinforcing free and fair elections. Have we had any requests for advice or help in policing, rather than for military help?

Mrs. Chalker: We have not had such requests up to now. Should such requests be made by the United Nations, of course we shall consider them sympathetically. However, there is an increase in the observer force, and I am certain that the special representative, if he believes it to be necessary, will make such a request via the secretary-general in New York.

Mr. Anderson: Are the Government now honest enough to accept that they have colluded in a massive underfunding of the United Nations exercise in Namibia? Is it not correct, for example, that the Secretary-General has already asked for an increase in the UN police force above 500? How can an adequate electoral roll be established if the UN High Commissioner for Refugees does not have the funds to organise reception centres for exiles, who should return to Namibia within six weeks from 15 May? Will the Government provide funds to send parliamentary observers and monitors to the election in Namibia, as many of our European partners have done already?

Mrs. Chalker: To the best of my knowledge none of our European partners have yet sent observers of any sort. Should that be desirable, of course we will consider it.
I repeat to the hon. Gentleman that we have made it absolutely clear that the refugee work must proceed, which was why we were the very first country to give resources for the United Nations High Commissioner for Refugees to get on with that important job. On the hon. Gentleman's point about underfunding, we have consistently backed the recommendation of the United Nations Secretary-General on the numbers that his adviser told him were necessary to start the process. The delay in the start of the process was due solely to the arguments being protracted until 1 March, before which no arrangements for deployment could be made. I repeat that we have further said that if the United Nations Secretary-General believes that there is a need for a further increase in the number of police and military observers, we shall, of course, consider that with our partners in the Security Council.

Middle East

Mr. Andrew MacKay: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the peace process in the middle east.

Mr. Waldegrave: We continue to believe that a settlement of the Arab-Israel dispute must be based on Security Council resolutions 242 and 338 and that an international conference, at the right time, will be necessary. We look forward to discussing with Mr. Shamir how his proposal for elections in the occupied territories can contribute to this process when he visits the United Kingdom later this month.

Mr. MacKay: As the PLO appears belatedly to have recognised the existence of the state of Israel, does my hon. Friend agree that it is now not inconceivable that at some appropriate time in the future our Prime Minister might meet Mr. Arafat?

Mr. Waldegrave: We unequivocally welcome the steps forward that have been taken by the PLO. As my right hon. and learned Friend told my hon. Friend the Member for Arundel (Mr. Marshall) on 8 February, we are certainly ready to promote further meetings when they can serve a useful purpose.

Mr. Ernie Ross: Under exactly what conditions would the Prime Minister be prepared to meet Yasser Arafat?

Mr. Waldegrave: Any upgrading of meetings would undoubtedly involve my right hon. and learned Friend before they would involve the Prime Minister. The principle on which we have taken such steps has been that they should be seen to be carrying the peace process forward. Meetings should not take place just for the sake of having meetings.

Mr. Temple-Morris: Does my hon. Friend agree that the middle east peace process is certainly not helped by extremist exhortations to violence emanating from Tehran? In connection with that, what steps is my hon. Friend taking to prepare an international cohesive response and to prepare the necessary contingency measures?

Mr. Waldegrave: I have no doubt that the condemnation of the whole House, the European Community and


nations throughout the world has been clear. Incidentally, there has been a clear rejection of Mr. Rafsanjani's remarks by Mr. Arafat and by the PLO for, which I thanked Mr. Bassam abu Sharif, Mr. Arafat's representative, when he was in London recently. We are taking steps within the Community, with our allies and with other friendly countries to get the widest and clearest possible rejection of that intolerable threat.

Mr. Nellist: Given that the weekend saw the bloodiest single day's fighting in the 18-month intifada against Israel's occupation of the West Bank and the Gaza strip, with four deaths, 343 injuries, including 147 gunshot wounds, the youngest of which was to a seven-month-old baby, has not the time come for the Government to respond as sharply as they have done in the past to Libya and to Iran and to cancel the state visit of Prime Minister Yitzhak Shamir which is due in 10 days' time?

Mr. Waldegrave: That would be exactly the wrong step to take. Without in any way disagreeing with the hon. Gentleman that the events in Gaza over the weekend were, as our statement at the time said, deplorable and another step downwards, that would make the whole situation worse. At a time when there is just a glimmer of light and a proposal on the table from Mr. Shamir, it is surely right for us to follow the example of the PLO and to try to make something of that statement and to make progress on the basis of what, I recognise, is a minimal proposal. It would be better to do that than to slam the door and not talk.

Mr. Rhodes James: As my hon. Friend is aware, I am a strong friend of Israel, but I have been and remain highly critical of certain actions of the Israeli Government, especially the brutal and indefensible response to the intifada. However, that having been said, does my hon. Friend agree that there are now clear signs that the Israeli Government are responding to the criticisms from inside as well as outside Israel and that they are moving towards negotiation? Surely that should be welcomed and encouraged.

Mr. Waldegrave: Any signs of movement towards negotiation by the Israeli Government will receive not only the support of Her Majesty's Government but, I am sure, that of the whole House. It is to investigate whether there are such signs and to encourage any that exist that it is right for us to welcome Mr. Shamir here.

Mr. Winnick: While I accept the essential need for Israel to recognise the realities and start negotiations with the PLO, should not steps taken by European countries over the latest incitement to mass murder from the Iranian regime be effective, unlike on the previous occasion?
Is it not the case that, to a large extent, Iran is the ringleader of international terrorism, while at home it engages in the murder of political opponents? Is it not time for the international community to recognise that much more needs to be done to punish and isolate this terrorist regime?

Mr. Waldegrave: I agree wholeheartedly with the hon. Gentleman. We in this country can say to some of our colleagues, friends and allies round the world, "We told you so." After the Salman Rushdie affair we urged people to take seriously the irresponsible threats from Iran—some did and some did not. Those who did not now seem

to stand indicted. In the face of this further threat the civilised international community must surely unite in practical condemnation.

Mr. Michael Marshall: I am grateful to my hon. Friend for his comment about an earlier question in which the Yasser Arafat meeting was mentioned. Will he take on board the fact that when Yasser Arafat was invited to the IPU conference in Budapest in March, it was felt that the exchanges that followed were valuable. When parliamentarians and western journalists considered matters such as the responsibility for the Lockerbie air disaster it resulted in some fruitful discussion.

Mr. Waldegrave: My hon. Friend is quite right. Such meetings between parliamentarians, journalists and other concerned citizens across the sectarian divide are extremely useful. A useful meeting was held at Ditchley over the weekend.

Mr. Kaufman: When Ministers meet Mr. Shamir when he comes to London this month, will they voice the dismay of the House at the daily toll of killings and repression in the Israeli occupied territories? Will they tell him that the House of Commons condemns the Israeli policy that brings about such killings and repression? Will they ask Mr. Shamir why, when the Israeli Government calls for the renunciation by the PLO of its charter and Mr. Arafat then makes a statement of renunciation, instead of welcoming it, the Israeli Government brush it aside, as they do every concession that Mr. Arafat has made? Will they tell Mr. Shamir that his excuses and the patience of the world are running out?

Mr. Waldegrave: Yes, Sir. When we do so, we shall do so with all the greater strength because of the unity shown by the House.

Bophuthatswana

Mr. Lawrence: To ask the Secretary of State for Foreign and Commonwealth Affairs what criteria Bophuthatswana would need to satisfy in order to be recognised by Her Majesty's Government as an independent nation state.

Mrs. Chalker: The same criteria that have been followed by successive British Governments and which are based on international law. Other factors, including relevant United Nations resolutions, are also taken into account.

Mr. Lawrence: Why does my right hon. Friend not agree that, in international law, Bophuthatswana does fulfil the criteria laid down for recognition? It has a definable territory, a permanent population, a Government, and the capacity to enter into relations with other states. Does not my right hon. Friend's policy have the rather ludicrous effect of driving Bophuthatswana to stay inside the sphere of influence of South Africa and thus strengthen apartheid, while the Government's policy is to woo South Africa's neighbours away from South Africa's sphere of influence and weaken apartheid? Cannot my right hon. Friend see the total inconsistency of the Government's policy?

Mrs. Chalker: My hon. and learned Friend should remember that Bophuthatswana is a homeland which was set up by the South African Government within South


Africa. We bear no ill will to those who live there. We are seeking to get rid of apartheid throughout South Africa. I take up my hon. and learned Friend on what he said about the criteria for recognition. He subtly altered the wording of the third criterion, which involves independence in external relations. That is one of our criteria. These criteria have been used by successive British Governments and are recognised by international law. I know that my hon. and learned Friend has been researching Judge Friedman's views and I understand that, under the terms of the Montevideo convention, they may be different. Our prime cause must be to help South Africa get rid of apartheid throughout the territories, including Bophuthatswana. Until there is a democratic system in South Africa, we cannot consider change.

Dr. Reid: I share the Minister's aim of getting rid of apartheid from South Africa and express my gratitude to her for having the courage to express it, but is it not hypocritical of the Government to set out the criteria in international law that they deem acceptable for independent sovereign nation-statehood while, at the same time, openly and blatantly to support American intervention in, and infringement of, the independent nation-statehood of sovereign Nicaragua?

Mrs. Chalker: I can see no connection between Bophuthatswana and Nicaragua. It is absolutely right that any country that wishes to look after its own affairs must show that it can do so. Bophuthatswana is not an independent country; it remains a homeland of South Africa.

Mr. Baldry: Does my right hon. Friend agree that Bophuthatswana is a creation of South Africa for the convenience of South Africa in South Africa and has no right to independence, either de jure or de facto, in international law, and that to try to pretend otherwise is a fraud?

Mrs. Chalker: We have been over this ground many times, and my hon. Friend is absolutely right. These seven territories are in no way independent of the rest of South Africa. They do not fulfil the criteria for recognition as an independent country and I do not see any likelihood of their doing so. I hope that when there is a democratic system in South Africa as a whole, in which all people can have a say, the situation may be different for the people of Bophuthatswana—but it will not be so earlier.

Mr. Morgan: Will the right hon. Lady confirm that it is not a criterion for recognition as an independent country that it should offer free trips to select groups from this House or any other part of the country, although that is a well-established tradition of the South African Government? The South African ambassador was in Cardiff on Monday trying to bribe Welsh rugby players to go to South Africa. Will she tell the ambassador that, only days after three members of his staff were expelled for good reason from this country for involvement in terrorist organisations in Northern Ireland, it was wholly improper for him to come to Cardiff to a reception at the Holiday Inn, as if it was business as usual with South Africa? It very much is not.

Mrs. Chalker: Neither the South African ambassador in London nor the South African Government are in any doubt about what we think about the last issue the hon. Gentleman mentioned.
It will always remain up to individual Members to decide what invitations they accept. Some may choose to go to South Africa and others to Nicaragua—that is an hon. Member's responsibility.

NATO

Mr. Hayes: To ask the Secretary of State for Foreign and Commonwealth Affairs when he next plans to meet the secretary-general of the North Atlantic Treaty Organisation; and what matters will be discussed.

Sir Geoffrey Howe: I met the secretary-general when he was in London on 24 April. I will see Dr. Woerner again at the end of this month at and for the NATO summit meeting.

Mr. Hayes: Does my right hon. and learned Friend think that our NATO allies might well agree with the Daily Mirror's editorial this morning, which says that Labour's defence policy is as confusing as it is unbelievable? When the laughter finally subsides, and NATO realises that it is nothing more than a policy for flexible surrender, would not the only honourable course left to a Labour Government—

Mr. Speaker: Order. The hon. Gentleman must try to relate his supplementary question to the original question.

Mr. Hayes: Would not NATO be of the opinion that the only honourable course for a Labour Government would be to withdraw from NATO before they were thrown out?

Sir Geoffrey Howe: My hon. Friend draws attention to a sound point, although he takes his fantasy rather far. The fact on which I am sure the NATO Alliance would agree is that the Labour party's new proposals for defence will be as ineffective for the defence of the Alliance as they have been for the uniting of the Labour party.

Mr. Menzies Campbell: Does the Secretary of State agree that there is a need for NATO to present a united front to the initiatives taken by Mr. Gorbachev? Does he agree that that would be best achieved through a sympathetic understanding of the views of all our allies and is not likely to be achieved by hectoring and browbeating the Federal Republic of Germany over its attitude towards the modernisation of short-range weapons?

Sir Geoffrey Howe: The Alliance has responded and will continue to respond effectively and with unity to the prospects for progress on arms control. I was able to announce those proposals when I spoke first to the Alliance at the beginning of the Vienna conference just two months ago. On the last point, the Alliance has agreed that for the foreseeable future there is no alternative to a strategy of deterrence based on an effective mix of nuclear and conventional forces which will be kept up to date where necessary. That mix includes a continuing requirement for land-based, sea-based and air-launched short-range nuclear forces in Europe. A third zero for land-based missiles is therefore not acceptable. Lance will become obsolete in 1995 and a deployment decision on a


successor will be needed in 1991–92. In order to keep open the necessary options, support for United States efforts to develop a follow-on to Lance is necessary. We will seek from the NATO summit confirmation of all those points that have already been agreed by the Alliance.

Mr. Churchill: I recognise the importance to NATO doctrine of maintaining and modernising our short-range nuclear forces. None the less does the NATO Alliance not have a clear interest in reaching agreement with the Soviet Union on coming down to a common ceiling? For example, if that were to be set at 100 on either side, we could maintain and modernise our own capability and the Soviets would have to abandon 1,300 of their launchers.

Sir Geoffrey Howe: There is bound to be a substantial difficulty about verification of any conclusion of the kind to which my hon. Friend refers, if that were to be reached by agreement. I agree with him absolutely that there is no reason why the Soviet Union should not reduce its weapons of that kind unilaterally to NATO levels. So far it has undertaken to cut only 24 of 1,608 short-range missile systems. It can do a great deal better than that minimal reduction. It could do it unilaterally and at once.

Mr. Kaufman: When the right hon. and learned Gentleman meets Manfred Woerner, the secretary-general of the North Atlantic Treaty Organisation, will he discuss with him and take into account the statement made by Mr. Woerner last week that he wishes a middle way to be found on the modernisation of short-range nuclear weapons at the NATO summit this month? Will he take into account also the statement of the Italian Prime Minister, Mr. de Mita, this week who said:
Other governments … basically agree, but not Mrs. Thatcher. The obstacle is there.
Will the Government explain to the House and to NATO why the Prime Minister is the only obstacle to agreement within the North Atlantic Treaty Organisation? Will the right hon. and learned Gentleman explain why her bellicosity and obstinacy result in Britain being the only country either in NATO or in the Warsaw pact that wishes to halt the process of nuclear disarmament?

Sir Geoffrey Howe: In his passion to present a totally false picture the right hon. Gentleman seems, unusually for him, to have overlooked completely the position, for example, of the United States. He will find no difference between the case that we are putting forward and that which the United States is putting forward. We shall be ready to go to the NATO summit, as we have done in the past, to secure an outcome consistent with the security of the Alliance in the long and in the short term.

EC (Fraud)

Mr. Greg Knight: To ask the Secretary of State for Foreign and Commonwealth Affairs what progress is being made by the European Commission to detect and deter fraud in the European Community.

Mrs. Chalker: At the meeting of Economic and Finance Ministers on 13 March the Commission undertook to

propose fresh measures to combat fraud and mismanagement, notably in agricultural export refunds and intervention storage.
Ministers will take this further at the June meeting of the Economic and Finance Council.

Mr. Knight: Can my right hon. Friend tell the House what steps have been taken by the European Commission to follow up the call of the Court of Auditors to bring about better financial control in respect of existing abuses of the common agricultural policy? Do not some estimates indicate that fraud in the European Community is costing up to £6 billion a year? That being the case, is it not right that the Government should continue to take the lead and press for further action on this outrageous scandal?

Mrs. Chalker: I, too, have seen the figure of £6 billion as being the cost of fraud to the Community. I understand that it was published in The Independent and is a speculative figure based on surmise, not on fact. But that does not alter the fact that this is a serious problem and that large sums are involved, even if we cannot give precise figures at the moment. That is why the British Government welcomed the Court of Auditors' report and ensured that its reports were discussed regularly in Council. At the 13 March meeting that I mentioned, the Commission promised a number of new and revised proposals, including concrete measures to improve controls over export refunds and intervention storage. The head of the anti-fraud unit is discussing the means of operation this month ready for the June meeting of Ecofin where we shall decide on the actual measures.

Mr. Cryer: If the Common Market is so keen and zealous in tracking down fraud and fraudsters, would it not be likely to have an idea of how much fraud is involved? Has the Minister any information to combat the figure of £6,000 million? As over the past four years membership has cost us £5,000 million and we have a deficit in manufactured goods of £11,000 million, does it not behove any Government to keep open the back door of withdrawal from the Common Market as a useful negotiating posture?

Mrs. Chalker: I am not surprised to note that some Opposition Members still favour an out-of-date attitude towards our future. With regard to our deficit on manufactured goods, 75 per cent. of equipment imported is for the re-equipping of factories for their modernisation. Companies are now investing in new plant and equipment in order to become more efficient. If we cannot provide the equipment ourselves, we must import it, and it is better that we import if from the Community which will serve us well. Wherever there is fraud, it must be sought out. However small or large, it must be deterred and detected. We shall put all our energies into doing just that.

Human Rights (Eastern Europe)

Mr. Kirkhope: To ask the Secretary of State for Foreign and Commonwealth Affairs what recent progress there has been in the development of human rights in eastern Europe; and if he will make a statement.

Mr. Waldegrave: Performance is varied. Hungary and Poland are continuing to take measures to improve human


rights and political freedoms. There has been little or no improvement in Bulgaria or Czecholsovakia or the GDR. Romania is, I am sorry to say, in a class of its own.

Mr. Kirkhope: Does my hon. Friend agree that the Soviet Union's record on human rights is still falling behind its social and economic achievements? Does he also agree that our foreign policy must take into account the individual records of each of the countries of eastern Europe and our assessment of them should be reflected in our general foreign policy decisions?

Mr. Waldegrave: I agree with both my hon. Friend's points. In particular, on his latter point, it is surely right that we in the United Kingdom and the EC should try to establish trading and other relations with the countries that are making progress and respond to that progress as it develops.

Mr. Eastham: Will the Minister advise the House whether human rghts include the unification and unity of families? A lady in my constituency with a British passport has two children and her Pakistani husband has been denied the right to join her? Is that human rights in the United Kingdom?

Mr. Waldegrave: Unless the hon. Gentleman is arguing for the abolition of all immigration controls—[HON. MEMBERS: "No."] It has always been the right of any country to maintain immigration controls. The Helsinki final act makes it clear that all signatory countries have the duty to allow people who want to leave a country to do so.

Sir Bernard Braine: Does my hon. Friend agree that the repellent and corrupt Ceausescu regime in Romania sticks out like a sore thumb in eastern Europe, that it has the worst human rights record in Europe and that it has caused a major refugee problem for its Warsaw pact neighbours? Does he further agree that this is a case where the West and the Soviet Union are caused common embarrassment? Is it possible to bring extra pressure to bear on that appalling regime?

Mr. Waldegrave: I agree with every word that my right hon. Friend says. The situation in Romania is tragic and shows no signs of getting better. The regime defends, with a mixture of childish and Stalinist arguments, the most appalling repression which is clearly an embarrassment to its friends. It would be gratifying to see more overt pressure being put on that regime from countries—other than Hungary, which has its own special reasons for being concerned about Romania—on the eastern side of the iron curtain, which we know are very embarrassed indeed.

Mr. Robertson: Will the Minister accept that hon. Members in all parts of the House warmly applaud and welcome the developments which are taking place in Poland and Hungary and feel that the European Community support that has already been offered should be real and appropriate for the circumstances there? Is he equally aware of our concern for the continuing human rights violations in Czechoslovakia? As hon. Members have pointed out, the indecent and unpardonable activities of the Romanian Government deserve and demand wide and vocal condemnation. Will he ensure that the view of the whole House is reflected in urgent Government action in this matter?

Mr. Waldegrave: Again, I can welcome wholeheartedly the position being taken by the Opposition Front Bench on this issue. There are many violations at present in Czechoslovakia. In particular, it is a scandal that Mr. Havel—perhaps the leading playwright in eastern Europe, some might say in Europe as a whole—is in gaol. We will continue to press very hard indeed on these matters, and we can do so again with redoubled force in view of the support of Opposition Members.

Bophuthatswana

Mr. Colvin: To ask the Secretary of State for Foreign and Commonwealth Affairs how many visits by Foreign and Commonweatlh Office officials have been made to Bophuthatswana over the last decade.

Mrs. Chalker: British embassy officials pay regular visits to all the South African homelands, including Bophuthatswana. The details of individual visits are not recorded.

Mr. Colvin: Will my right hon. Friend acknowledge that because it is politically difficult for Ministers to visit Bophuthatswana, it is even more important for their officials to do so to bear out what hon. Members have been reporting for years, which is that this is a rare example of an African multi-racial democracy—[interruption.]— which is attempting to stand on its own two feet economically, which is more than can be said for the front-line states? It is, therefore, a model of what we would like to see the Republic of South Africa become. [Interruption.]

Mr. Speaker: Order. We often hear things in this House with which we disagree.

Mrs. Chalker: We recognise what my hon. Friend says—that it appears that apartheid as practised elsewhere in South Africa is not practised in Bophuthatswana—and in that sense the South African Government have something to learn from Bophuthatswana. That does not alter the fact that the whole creation and existence of that homeland is itself an expression of the apartheid that the South African Government forced on it, and nothing that anybody says, here or in Bophuthatswana, will alter that situation.

Fascism

Mr. Janner: To ask the Secretary of State for Foreign and Commonwealth Affairs whether he will initiate discussions with his EEC counterparts concerning recent trends in organised Fascist activity throughout Europe; and whether he will make a statement.

Mrs. Chalker: Any trend in the direction of Fascist revival would be deeply disturbing, and I have no doubt the electorates of western Europe would reject it. I see no need to initiate intergovernmental discussion on the subject.

Mr. Janner: Does the Minister know that this weekend a gathering and camp of neo-Nazis from all over Europe is planned to be held in the east midlands? Does she agree that the bringing to this country of Nazi criminals, many of them with records of violence, for a meeting organised by an evil man named John Peacock, who runs the Nazi British National party in Leicester, should be banned, and


that such people should not be allowed into this decent country? In view of the urgency of the matter and of the Home Secretary's failure to reply to my communication about it, will the right hon. Lady undertake to speak to him immediately?

Mrs. Chalker: I am aware of The Observer report of 23 April and I am concerned by it. As the hon. and learned

Gentleman says, the matter is one for the Home Secretary. We do not have a visa regime for EEC nationals, but I shall certainly draw the hon. and learned Gentleman's comments to the attention of my right hon. Friend the Home Secretary. The way to defeat such occurrences is through debate and elections, not by banning.

Community Charge (Leaflet)

Mr. Speaker: Before calling the hon. Member for Copeland (Dr. Cunningham) to ask his private notice question, I should inform the House that the main issue with which it deals is to be the subject of judicial review in the High Court on or before 25 May and is therefore sub judice. The terms of the relevant sub judice resolution allow me to exercise my discretion and to waive the rule if I see fit, and I have decided to do so on this occasion. Dr. Cunningham.

Several Hon. Members: rose—

Mr. Speaker: Order. The whole House knows that points of order are taken after questions.

Dr. John Cunningham: I would like to ask the Secretary of State for the Environment—[HON. MEMBERS: "Where is he?"]

Mr. Speaker: Order. Such behaviour takes up a lot of time. Dr. Cunningham.

Mr. Dennis Skinner: rose—

Mr. Speaker: Order. I remind the hon. Member for Bolsover (Mr. Skinner) that he is in the House of Commons.

Dr. Cunningham: I should like to ask the Secretary of State for the Environment a question of which I have given him private notice; namely, if he will now abandon the distribution at the taxpayers' expense of the misleading leaflet entitled "The Community Charge (The So-Called `Poll Tax'): How it will Work for You."

The Minister for Local Government (Mr. John Gummer): Mr. Speaker—[Interruption.]

Mr. Speaker: Order.

Mr. Gummer: Pending the—[Interruption.]

Mr. Speaker: Order. The Minister's answer is one for which the House has been waiting. Mr. Gummer.

Mr. Gummer: Pending the hearing before the Divisional Court—[Interruption.]

Mr. Speaker: Order. I shall find it very difficult to call hon. Members shouting from a sedentary position.

Mr. Gummer: Pending the hearing before the Divisional Court of the substantive application by the London borough of Greenwich, my right hon. Friend the Secretary of State for the Environment gave instructions yesterday to the Department's contractor, the Post Office, to halt distribution of the leaflet in compliance with the terms of the order made on 9 May. My right hon. Friend made immediate application to the court for the earliest possible hearing, and a little more than one hour ago the court agreed to hear the case next Monday.

Dr. Cunningham: Given that the Secretary of State for the Environment has on six previous occasions been found to be acting illegally, is it surprising that on this seventh occasion on which he has fallen foul of the courts he has sent Postman Pat to answer in his place? Does not this latest humilitating exposure of the Secretary of State's

attempt to present people in England with misleading and inaccurate information demonstrate once again his cynical abuse of high office?
Why does the leaflet omit any reference to the highly controversial issue of joint and several liability, when the leaflet issued by the Secretary of State for Wales includes it? Does not that contrast prove that the Secretary of State for the Environment is guilty of a deliberate omission of important and objectionable facts about the poll tax?
Given that the judgment in favour of the Labour London borough of Greenwich was delivered at about 3 pm yesterday, will the Minister of State tell the House exactly when his right hon. Friend instructed the Post Office to halt delivery of the leaflets? Is he aware that throughout the day, all over England, the Post Office has continued to deliver it? It has been delivered in my home town of Chester-le-Street—which is in the constituency of my hon. Friend the Member for Durham, North (Mr. Radice)—and in the constituency of the Secretary of State for the Environment himself.
Does the Minister of State know that his right hon. Friend's constituents have been telephoning Labour party headquarters and my office to complain? Is that not evidence of flagrant contempt of the High Court decision? How can a decision announced at 3 pm yesterday still not have been implemented by lunchtime today? What is the explanation?
Has not the Secretary of State's political trickery already cost taxpayers several millions of pounds, and will not his incompetence and prevarication cost them several million more? Is it not about time to stop making taxpayers foot the bill for this squalid and incompetent exercise of Tory party propaganda?

Mr. Gummer: In my experience, the more offensive the hon. Gentleman is, the weaker is the case whose weakness he is trying to cover up. The hon. Gentleman knows perfectly well that with the hearing taking place on Monday it would be wholly inappropriate for me to enter into the merits of the case—[Interruption.] I shall, however, be happy to give the hon. Gentleman any details that he would like about the timing, if he will kindly be quiet enough to listen.
The court made its order at 2.45 yesterday afternoon, without hearing any representations from my right hon. Friend the Secretary of State. Counsel for Greenwich faxed a copy of the order to the Treasury Solicitor two hours later, at 4.45 pm. [Interruption.]

Mr. Speaker: Order. These are important matters of great interest to the House and to those outside.

Mr. Gummer: It is important for the House to hear the full details for which the hon. Member for Copeland asked. When the hon. Gentleman has heard the figures, the dates and the times, he will be sorry for the form in which he framed his question. Perhaps that is why he is trying not to listen to the answer. The order reached the Department 20 minutes later and the Secretary of State immediately considered its implications with his advisers. As a result of that consideration, he instructed lawyers to seek as early a hearing of the case as possible and at the same time instructed officials—[HON. MEMBERS: "When?"]—I will tell exactly the moment.
At the same time my right hon. Friend instructed officials to tell the Post Office to stop distribution until further notice—[HON. MEMBERS: "When?"] The Secretary


of State gave that order at about 6.20 pm. The COI was telephoned at 6.30 pm. The COI, as agent for the Department, telephoned the Royal Mail immediately, and subsequently the Royal Mail's solicitor, and told them to stop distribution immediately. That was confirmed by fax to the Royal Mail's solicitor shortly after 7.30 pm and the COI then gave instructions to Post Office Counters not to display leaflets in Crown post offices. A letter was delivered by hand from the COI to the Royal Mail at 9 o'clock confirming those instructions.
Therefore, the House will note that at no point from the first delivery of the order to the Government was there any delay whatsoever.

Mr. Terence L. Higgins: Is my right hon. Friend aware that the London borough of Greenwich issued with its rate demand and at ratepayers' expense this year a leaflet which was pure propaganda against the community charge? Will he look carefully into the matter? [Interruption.]

Mr. Gummer: I am aware of that fact. I am also aware that the London borough of Hammersmith and Fulham sent out at ratepayers' expense a document which said —[Interruption.]

Mr. Speaker: Order. The Minister has been asked a question and he must be allowed to answer it.

Mr. Gummer: The document said that the poll tax or community charge will require all adults
to pay the same amount irrespective of their income, size of property or ability to pay.
when there is a rebate which covers 9·5 million people.

Mr. Matthew Taylor: The House will agree that the Minister has shown contempt for the people of this country and for the use of public funds, and that nothing he says about any local authority will scrape over the fact that he has acted improperly at a national level. Can the Minister explain to the House the series of delays in notifying the Post Office that it should not deliver the leaflet, which is being delivered all over the country today? Can he explain why the Department was not represented in court, and if it was represented in court, why the message was not sent directly to the Department of the Environment?

Mr. Gummer: The hon. Gentleman is not a lawyer; I am not a lawyer but I know what an ex parte injunction is. The hon. Gentleman shows as much ignorance of the law as he does of the nature of the document. He has clearly neither read the document nor understood what is in it.

Sir George Young: Is my right hon. Friend aware that many of us wish that the Post Office would deliver our election addresses as promptly as they have delivered the leaflet? Is my right hon. Friend aware that while some Conservative Members did not share the Government's enthusiasm for the measure last year, that debate is now over, the Bill is an Act and the public have a right to be informed about it? While the courts will decide the accuracy of the leaflet, does not the standard registration form that is recommended by the Department, which will be signed by members of the public, make it clear that there is joint liability between husband and wife?

Mr. Gummer: The standard registration form makes it perfectly clear that there is joint and several liability between husband and wife, so anyone filling it in, unless

they cannot read it, will be in no doubt about that fact. If my hon. Friend lived in the London borough of Islington, he would have received a guide which says,
Scream And Scream Again Poll Tax on Upper Street
which was paid for by ratepayers. Under the heading,
What happens if I live with my girlfriend/boyfriend?
the London borough of Islington fails to mention that if one lives with someone of the same sex one is not liable for their community charge.

Mr. Paul Murphy: Has the Minister discussed this matter with his right hon. Friend the Secretary of State for Wales? Is this leaflet being distributed in Wales? Has the Attorney-General given clearance for it to be distributed in Wales? Does the Minister agree that in last week's by-election the people of Wales decisively rejected the poll tax?

Mr. Gummer: The hon. Gentleman's last comment shows that this is a political rather than legal argument. Opposition Members should realise that the leaflet that is being distributed door-to-door in Wales is honest, clear and concise, as is the leaflet that will be distributed throughout the rest of Britain.

Mr. John Heddle: In view of the Labour party's quest for the truth, will my right hon. Friend challenge it to come clean with the public and explain how much the wealth tax, on top of the local income tax, on top of national income tax—[Interruption.]

Mr. Speaker: Order. The hon. Gentleman's question must be confined to the subject of the private notice question.

Mr. Gummer: The House would take more kindly the comments of the hon. Member for Copeland (Dr. Cunningham) if he had answered questions put to him about his two-tax policy, which he has failed to do, letting down the British people as a result.

Mr. Alex Salmond: As the Minister has been caught with his hands in other people's letter boxes, will he take immediate steps to consult his Scottish colleagues to determine how much misinformation was distributed in Scotland last year at public expense? Do 80 per cent. of Scottish people remain bitterly opposed to the poll tax in spite of or because of the Government's campaign of misinformation?

Mr. Gummer: The community charge leaflet that has been distributed in England, like the material that was distributed in Scotland, is accurate, wholly true and entirely without misinformation. The Government will stand and fight on that.

Mr. Robert G. Hughes: Does my right hon. Friend agree that the leaflet is one of a series of nine being distributed that give the true picture of the community charge? The reason for the smokescreen thrown up by the Opposition is that they recognise that the more people know about it the more popular it will be.

Mr. Gummer: My hon. Friend is entirely right. The more people know about the community charge, the more they will support it. The Opposition are so frightened of the community charge that they are not prepared to call it by its proper name.

Mr. Peter Snape: Will the Minister tell the House how many judgments have been entered against the Secretary of State for the Environment since 1979? In the event of appeal being dismissed, will the Conservative party meet the cost of the leaflets and the legal charges? Who decided that the Central Office of Information was the proper organisation to inform the Post Office not to distribute the leaflets further, bearing in mind that the normal function of the COI is to arrange lunches for hon. Members?

Mr. Gummer: The COI is the agent for the Department of the Environment in its dealings with the Post Office. That is why it was properly asked to carry out its job as agent. The Government are utterly confident that the document that has been put out is wholly fair and concise and, without question, we shall win the case.

Mr. Teddy Taylor: If the pamphlet is withdrawn, will my right hon. Friend appeal to the leader of the Labour party—I mean this sincerely—to use what influence he has over the Labour London boroughs to persuade them to stop handing out leaflets, such as the one I have in my hand, which cause distress and anxiety to pensioners and poor people, describe the poll tax as a kind of plague and, unfortunately, tell people to deny that they have received an official form and urges the general public, when someone comes to the door, to deny who they are. Does my right hon. Friend agree that it would be better if the Labour party was to start having pamphlets which were acceptable because they told the whole story rather than this rubbish, which genuinely upsets simple people, poor people, and pensioners?

Mr. Gummer: My hon. Friend would agree that the Opposition's case is undermined when we see the material that has emerged from, for example, the Lambeth and Norwood Labour party, which says:
If canvassers come round to question you, say you are the baby-sitter or looking after the premises while your friend is away … Wait a week or two and then write back saying your dog ate the form, it fell in the washing-up, or you never received a form … any excuse will do.
That is what the Labour party wants to tell the people. We want to tell them the truth.

Mr. Bob Cryer: First, on the Minister's own account, is it not true that the first reaction of the Secretary of State to the decision was not to carry out the terms of the injunction, but to discuss a challenge to it in the courts? Should not the first response of any law-abiding Minister, particularly a Minister belonging to a party that claims a special position on law and order, have been to contact the Post Office immediately to give the court's instructions? Secondly, does there not appear to have been some deliberate delay so that it would be more difficult for the Post Office to carry out those instructions? Thirdly, can the Minister explain—

Mr. Speaker: Order. Briefly, please.

Mr. Cryer: Can the Minister explain why the Parliamentary Under-Secretary of State, the hon. Member for Surrey, South-West (Mrs. Bottomley), failed to notify hon. Members adequately of her visit to Leeds and Bradford to distribute the leaflets personally? Should she not be involved in getting them back so that the injunction is carried out?

Mr. Gummer: The hon. Gentleman is suggesting that it was somehow improper for my right hon. Friend to spend an hour and 35 minutes discussing with lawyers the precise import of the order. If he had not spent that time, he might have made a decision that broke the contract we had with the Post Office. I am sure that the hon. Gentleman would accept that it was proper to decide what the order demanded and then to do it, which is what my right hon. Friend did. The hon. Gentleman has never run anything in his life, so he is not in a position to make complaints.

Mr. David Shaw: Is my right hon. Friend aware that—[Interruption.]

Mr. Speaker: Order. The hon. Gentleman has as much right to be heard as anyone else.

Mr. Shaw: Is my right hon. Friend aware that we discussed the community charge in Committee for 143 hours, considering an immensely complex Bill, and that the Bill is so complex that he has my congratulations on getting his Department to produce an excellent summary of it? Is he aware that the Act is 179 pages long and that it goes on for 100,000 words? Is he aware that his summary is only about 2,000 words and is extremely efficient? Furthermore, is he aware that his summary leaflet deals with the issues about which my constituents want to hear?

Mr. Gummer: It is clear that a large number of people in Britain want to know more about the community charge, including the borough of Scunthorpe, which has distributed to its ratepayers a leaflet that says:
The poll tax will be a flat rate charge for local services payable at the same rate by all adults.
That is a lie.

Mr. Peter L. Pike: The Minister will recall that yesterday afternoon on this very issue the Prime Minister told my hon. Friend the Member for The Wrekin (Mr. Grocott) that it was
vital … that people have accurate information".—[Official Report, 9 May 1989; Vol. 152, c. 722.]
The Minister will also recognise that we do not need courts or lawyers to tell us that the leaflet is both misleading and inaccurate. To avoid wasting any further public money, will the Government agree to withdraw the leaflet immediately? In view of what the Prime Minister said yesterday, would not the honourable thing for the Secretary of State to do be to resign before he is sacked by the Prime Minister?

Mr. Gummer: As always, my right hon. Friend is right and the hon. Gentleman is wrong.

Mr. Ian Gow: As the Divisional Court has seen fit to grant an injunction in respect of a leaflet which was in every respect accurate, why does not my right hon. Friend make similar applications to the Divisional Court to prevent the publication of the appalling leaflets to which he has referred?

Mr. Gummer: Because I believe that the public will see through the nonsense of the Opposition and recognise the difference between the truth as presented clearly and concisely by the Government and the party political propaganda presented by the Opposition.

Mr. Tony Banks: I am sure that the House will join me in congratulating the London borough of Greenwich on bringing this matter to the


court. Will the Minister tell the House how much this piece of Tory party propaganda cost the taxpayer, and if the appeal is turned down, what will happen to the leaflet? If it was a local authority that had been caught out, there would be demands for surcharge. Will the Secretary of State be surcharged or will he add hypocrisy to recidivism? Surely the best defence for the Secretary of State is to go into court and cop a plea of guilty but insane.

Mr. Gummer: No public funds have been used for Tory party propaganda; that would be entirely wrong. A great deal of public funds appear to have been used by local authorities for Labour party propaganda.

Several Hon. Members: rose—

Mr. Speaker: Order. This is an extension of Question Time. I shall allow three more questions from either side and then we must move on.

Miss Ann Widdecombe: Can my right hon. Friend confirm that not a single line of the document in question has been challenged on its factual content, that all the furore is about an omission and that, without printing the entire Act, there was no possible method of avoiding omissions? Will he also confirm that this is an interim injunction and not a final judgment and that the baying and bawling from the Opposition show that they are making hay while the sun shines and are dubious about the final judgment?

Mr. Gummer: I think that my hon. Friend is wrong. The furore is not about an omission; it is an attempt to stop people knowing about a charge that they are to pay and to hide the fact that the Opposition do not dare tell people about the two taxes that they would introduce instead.

Mr. Roy Hughes: Can the Minister shed any light on the reason for the different wording of the leaflet in England as compared with that in Wales? Is it not time that the Government realised that the poll tax is regarded as equally pernicious in both countries?

Mr. Gummer: Happily, in this country we have three Secretaries of State who are responsible for environmental matters. Each leaflet was written separately. Each leaflet is different. That is proper, because each country is different.

Mr. Patrick McLoughlin: Will my right hon. Friend confirm that that action will in no way impede the introduction of the community charge and, therefore, will mean that the recent local elections were the very last in which there was no full accountability of what local councils do? That is why the Labour party is concerned about the introduction of the community charge.

Mr. Gummer: The reason Opposition Members hate the community charge is that, for the first time, they will be responsible to the electorate instead of to their local management committees.

Mr. Stuart Bell: The Minister said that the document was accurate, wholly true and entirely right. In fact is is full of disinformation, inaccurate and entirely untrue. It states that, if a local council wishes to spend more, the community charge will go up. It does not state that 75 per cent. of local council expenditure is controlled by the Government through the business rate and the revenue support grant. If either of them goes down, local council expenditure will go up. Why does the document not state that?

Mr. Gummer: The hon. Gentleman knows perfectly well that 75 per cent. of the money which local councils spend comes from taxpayers and business ratepayers. That is not control; that is paying the price of local government.

Mr. Tony Baldry: Is it not essential that there is accurate and fair information on the community charge? This week, the Labour party distributed in my constituency leaflets which stated that the new tax will be the same for the rich and the poor. That is a deliberate lie, because the leaflet takes no account of the fact that, for poor people, there will be rebates of up to 80 per cent. As half of local government funding comes from national taxpayers, the top 10 per cent. of wealthy families will pay 15 times more for local government than the bottom 10 per cent. of families.

Mr. Gummer: The truth is clear. Those who need help to pay the community charge will get it. The truth is stated in the document that was put out by the Government. If anyone wants to see anything misleading, all that they have to do is to look at what local branches of the Labour party have put out. It is because Labour Members are ashamed of what they put out that they tabled this private notice question today.

Mr. Brian Sedgemore: How does the Minister respond to statements by senior civil servants at the Central Office of Information at lunchtime today that there are lies, damned lies and the Secretary of State for the Environment?

Mr. Gummer: The hon. Gentleman now has the worst reputation but one in this House for making statements under the cover of privilege which he dare not make outside.

Points of Order

Mr. Frank Dobson: On a point of order, Mr. Speaker. In case there has been any inadvertent misleading of the House, I should be grateful if you would ask the Minister whether, although not formally represented, Government officials were present at the court hearing.

Mr. Speaker: It is not for me to ask that question.

The Minister for Local Government (Mr. John Gummer): To make it absolutely clear, the Government were not able to make their representations to the court. [HON. MEMBERS: "Were you in court?"] The Government were not able to make their representations in the court—[HON. MEMBERS: "Answer."] I will answer the question—simply because it was an ex-parte injunction. Therefore, the Government were not able—the Government had the advantage of the fact that an official was present in the court. [HON. MEMBERS: "Ah!"] The situation is perfectly clear. The court's order has to be received as an order in its fulness, otherwise no lawyer will advise on it. I know that to be true because I asked for advice when the material was not in front of us. Advice was not forthcoming because no lawyer worth his salt will give advice on an order the contents of which he has not got.

Dr. John Cunningham: Further to that point of order—

Mr. Nicholas Budgen: On a point of order, Mr.Speaker. May I remind you that during the one hour of Question Time there was only one question—No. 11—that directly concerned the House, and that was about the finances of the EEC? The taxpayer contributes £1·6 billion to the EEC and is directly concerned about the fraud in the EEC. On the other hand, for instance, you allowed a discussion of about 10 minutes on the situation in the middle east. I have no doubt that every citizen of the middle east will be waiting to hear tomorrow what the House of Commons has said about its problems. Surely it is wrong to have a truncated discussion of the EEC in questions to the Foreign Office. It is a disgrace that we, on behalf of the British taxpayer, could discuss that issue for only two minutes. Is there not a very strong case for a reconsideration of our procedures, so that, at the very least, we get the old quarter of an hour in which we can discuss this country's most important alliance?

Several Hon. Members: rose—

Mr. Speaker: I shall hear hon. Members, further to that particular point of order.

Mr. Tony Marlow: Further to that point of order, Mr.Speaker. I am on your side. I am sure that my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) does not mean to criticise you, Mr.Speaker, and it is very difficult, but we had two questions on a place called Bophuthatswana. I think about 5 per cent. of hon. Members in the House know where it is. As a result of those two questions, we had five supplementary questions. On the European question we had—

Mr. Speaker: Order. I do not think we should have a debate on the matter. I thank the hon. Gentleman for what he has said. If he had been present, he would know that there was no further supplementary question apart from that of the hon. Gentleman who asked the question on the second of those two questions on that country, which I too find it difficult to pronounce.

Several Hon. Members: rose—

Mr. Speaker: Order. I am on my feet. On the point made by the hon. Member for Wolverhampton, South-West (Mr. Budgen), it is a difficult judgment at Question Time. We went slowly today, because there were very long answers, and some supplementary questions with very long answers, too. I shall bear in mind what the hon. Gentleman has said.
On the EEC question, if the hon. Gentleman wishes to go back to what happened in, I think, the last Parliament, he should pursue the matter through the usual channels.

Dr. Cunningham: On a point of order, Mr. Speaker. Is it not now clear from the Minister's answer to my hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson) that Government officials were present yesterday in the Queen's Bench Division of the High Court? Is it not also clear from the Minister's answer that the Government, and especially the Secretary of State, prevaricated, obfuscated and delayed for six hours before ensuring that the decision of the court was put into practice, thus ensuring that, in spite of the decision of the judge, deliveries of the leaflet went ahead throughout today? Is not that a constructive contempt of court? Is it not a further contempt of the House that the Secretary of State is not here to answer for all those matters?

Mr. Gummer: Further to that point of order, Mr. Speaker. The hon. Gentleman's point of order, if it is one, is entirely without foundation. The situation is that, the moment that we had any inkling that Greenwich had obtained some kind of order, I sought immediately to get the details of that order. The moment I got them, I immediately took action upon them. If Greenwich had wanted us to deal with it earlier, it could have arranged its affairs in a way which would have meant that we would have known—[Interruption.]

Mr. Speaker: Order. We cannot have an extension of Question Time now.[Interruption.] Order. We shall doubtless return to this matter on other occasions.

Mr. Dave Nellist: rose—

Mr. David Winnick: rose—

Mr. Alex Carlile: rose—

Dr. John Reid: rose—

Mr. Bob Cryer: rose—

Mr. Jeff Rooker: rose—

Mr. Speaker: Order. I am on my feet and I must ask the House to listen to me. We have a Committee stage today, followed by a Ways and Means resolution, followed by a prayer. We have a long day ahead of us and we should now move on.

Mr. Rooker: I have a point of order for you, Mr. Speaker, on this matter, not for the Minister. It involves


your decisions and your control of the Order Paper. Until today I had never been seriously questioned at the Table Office about the term "poll tax" in a written question, but today I was. I raise this with you, Mr. Speaker because I was told, "Soon, Mr. Rooker, decisions will have to be taken about this," and clearly those decisions will have to be taken by you. I do not ask you to rule on this now, but point out the words "poll tax" appear twice on the front cover of the leaflet about which the previous exchanges occurred. Indeed, it is commonly known as the "poll tax".

Hon. Members: No, it is not.

Mr. Speaker: Order. The House should allow me to hear.

Mr. Rooker: I am asking you, Mr. Speaker, to give a ruling so that hon. Members are free to use expressions and to table questions in the common parlance of our constituents—as agreed by the Government, who now know it as the poll tax. I ask for your consideration of this matter.

Mr. Speaker: This is the first that I have heard of it, but I shall look into that matter.

Mr. Edward Leigh: Since when has a point of order been an extension of Question Time?

Mr. Speaker: Very frequently, I am afraid.

Several Hon. Members: rose—

Mr. Speaker: Order.[Interruption.]I am not hearing any more questions on this matter under the guise of a point of order, but if they are on a different matter, I shall hear them.

Mr. Nellist: rose—

Mr. Speaker: Is it a different matter, Mr. Nellist?

Mr. Nellist: It is a point of order, Mr. Speaker—[Interruption.]

Mr. Speaker: Order. I will hear any points of order that are not concerned with the poll tax, or the community charge, or whatever any Member of the House likes to call it.

Dr. Reid: My point of order does not specifically concern the poll tax or the community charge, but I ask your guidance on procedure in the House, Mr. Speaker. If a statement were to be made and a long question session followed on a matter of great national importance, such as the Government's handling of taxpayers' money, and if, after an hour and a half of such questions it was discovered, following the closure of that question session on a point of order raised by the Opposition Front Bench, that all those questions had been predicated on an initial statement that had concealed information from Members of the House, would it be in order, in circumstances concerning the poll tax, or whatever, for an Opposition Member to be justified in demanding that we should have a further extension of questions to elicit the true information on that subject?

Mr. Speaker: That is a hypothetical matter.

Mr. Alex Carlile: rose—

Mr. Cryer: rose—

Mr. Winnick: rose—

Mr. Brian Wilson: rose—

Mr. Speaker: Order. I am not taking any more points of order on the private notice question, but I will take points of order on a different matter.

Mr. Carfile: On a point of order, Mr. Speaker.

Mr. Speaker: I will take Mr. Carlile's point of order if it is on a different matter.

Mr. Carlile: My point of order, Mr. Speaker, concerns the position of Ministers who may have acted in contempt of court. If it happened—and from what has been said it appears that it happened—that a Minister who had knowledge of an injunction ignored it for six hours, will you, Mr. Speaker, ask the Attorney-General to advise this House in a statement whether that Minister was in contempt of an order of the House?

Mr. Speaker: That would be a matter for the courts.

Control of Electronic Surveillance Devices

4.14

Mr. James Cran: At long last, I beg to move,
That leave be given to bring in a Bill to control the manufacture and sale of electronic surveillance equipment in the United Kingdom.
Although this matter is less sensational than what has gone before, the Bill's supporters and I believe that it is no less important. The Bill is necessary because of the growing availability in this country of electronic surveillance devices, which are commonly known in this and other countries as bugging equipment. There is no real impediment to the use of such equipment in this country. It can be sold over the counter in the relevant retail outlets for relatively modest prices. The equipment can be used to invade the privacy of third parties. The Bill's supporters and I regard that practice as grossly offensive. In line with other pieces of legislation introduced by other Back Bench Members, my Bill discourages that practice.
Technical developments are making the position a great deal worse. These devices are now becoming technically miniaturised and can be hidden in everyday office equipment and other equipment in houses and offices. These devices can be attached to the outside of buildings and walls, to windows, glass panes or whatever. When they are in place the conversations taking place inside the building can be picked up from anything from 1,000 yards to a few miles away.
My Bill questions why law-abiding citizens in this country should wish to use such devices to eavesdrop on other people's affairs. These devices are such that those people who are being snooped upon—for that is exactly what it is—may not know what is happening.
If hon. Members consult the advertising material for these devices, as I have done in some considerable detail, they will find that the equipment is sold for the purpose of, "discreet listening". Do hon. Members believe that the House should support discreet listening by the use of such equipment? We should not support it. The use of such devices could lead to a massive invasion of privacy. The Bill rectifies that position. It is much the same as the Anti-Hacking Bill introduced by my hon. Friend the Member for Torridge and Devon, West (Miss Nicholson), which is before the House and which deals with eavesdropping on computer-held information.
Eavesdropping is occurring in many guises. My Bill will ensure that, from the time of enactment of the Bill, all such devices would be licensed by the Home Office. The Act would apply not only to home manufactured devices but to a considerable number of devices imported into this country. Therefore, unlicensed equipment could not be sold in this country, and that would equally apply to another growth industry in this country: counter-surveillance equipment. We need such equipment to discover whether surveillance equipment is being used against us.
The Bill's supporters also strongly believe that the offence should be made a criminal offence. Prosecutions would occur far more easily and, perhaps just as important, a clear signal would go out to the community that the invasion of privacy about which I am talking will not be tolerated by the House.
This matter is of particular significance for companies. One company taking over another would be at a considerable advantage if it knew what the other company was thinking about the takeover. The same applies to new products brought out by companies. Should not new products before they are launched be the business of the company that thought of them rather than the business of everyone else who can use this equipment?
This must be a criminal offence because there is almost no legal protection at present. I do not know how it strikes other hon. Members, but it came as a surprise to me to learn that it is not illegal to listen in to other people's conversations—I do not mean in the street, but in their homes or offices. An Englishman's or a Scotsman's home is no longer the castle that it used to be. The only slender protection—this is disgraceful—in this country lies in the fact that if these devices transmit unauthorised radio signals their use is illegal. The same occasionally applies when they are used in conjunction with telephone lines or equipment. Only those instances are illegal, not stealing information from a third party. My Bill will rectify that.
My right hon. Friend the Home Secretary recognised these weaknesses in his letter to me of 4 August 1988:
Radio surveillance devices are unlikely to cause interference to other radio users simply because if they did their use would quickly be detected and their purpose defeated.
We are entitled to wonder why, if he believes that, he does not act on it. [HoN. MEMBERS: "Hear, hear."] I am grateful for that support.
My Bill would also provide another measure of protection, in the form of ensuring that registers are kept of those who manufacture, sell and buy the equipment. We need to know where the equipment is going and for what purposes it is being bought. My impression is that the Home Office thinks the equipment is being bought for legitimate purposes; I do not believe it. Such registration would give a clear signal to the community that abuse will not be tolerated in this country. That abuse is occurring is evident in the words of a major retailer and manufacturer of this equipment, who said:
I never sit in judgment on or moralise about why a company or individual should be buying surveillance equipment.
My sponsors and I are of the same mind: retailers should exercise judgment. In its absence, we believe that legislation is necessary. For these reasons and in that spirit I commend the Bill to the House.

Question put and agreed to.

Bill ordered to be brought in by Mr. James Cran, Mr. David Porter, Mr. Timothy Kirkhope, Mr. Matthew Carrington, Mr. Tim Boswell, Mr. Andrew Hargreaves, Mr.Dudley Fishburn, Mr. Alan Amos, Miss Ann Widdecombe, Mr. David Martin, Mr.Douglas French and Mr. James Paice.

CONTROL OF ELECTRONIC SURVEILLANCE DEVICES

Mr. James Cran accordingly presented a Bill to control the manufacture and sale of electronic surveillance equipment in the United Kingdom: And the same was read the First time; and ordered to be read a Second time upon Friday 7 July and to be printed. [Bill 137.]

Point of Order

Mr. D. N. Campbell-Savours: On a point of order, Mr. Speaker. May I record with you, in regard to the questions asked today on Bophuthatswana, that in evidence given to the Select Committee on Members' Interests by the person who represents that area of South Africa in London, we were informed that 36 Members of the House of Commons, all Conservatives apart from one, have been sent there free of charge, all expenses paid, within the last few years. That information was given in the evidence to the Committee.
We were also told that the airport to which they flew was based within the fuller Republic of South Africa, that is to say, not within the area that we are talking about, and that most people went on to other towns and cities in South Africa. It seems that Bophuthatswana is no more than a freebie stopping-over place for people wishing to visit South Africa.

Mr. Speaker: Those facts would have been recorded in the Register of Members' Interests.

Mr. Campbell-Savours: They are not.

Mr. David Winnick: On a point of order, Mr. Speaker, about what was said earlier. If you allow a private notice question, I accept that on a number of occasions the Secretary of State to whom the question is addressed is not present. Where the Secretary of State is directly involved, should he not be here to answer the question'? Failing that, should there not be an apology from the Minister who answers in his place? On a matter where the Secretary of State has been directly involved in the court and in Parliament, since he was not here to answer the private notice question, should not the Minister of State at least have given an explanation?

Mr. Speaker: It is not a matter of order in the Chamber. It is a matter for the Government which Minister answers questions or makes statements.

Mr. Patrick McLoughlin: On a point of order, Mr. Speaker.

Mr. Speaker: I hope the point of order is not about the matter that has just been raised.

Mr. McLoughlin: No, Mr. Speaker; it is further to the point of order raised by the hon. Member for Workington (Mr. Campbell-Savours). In regard to hon. Members declaring foreign travel, it might be useful for clarification to be included in the Register of Members' Interests about what foreign travel hon. Members should declare. Certain hon. Members have been on foreign trips that do not appear in the Register.

Mr. Speaker: I have always understood that trips paid for on behalf of hon. Members should be recorded.

Orders of the Day — Finance Bill

Orders of the Day — (Clauses Nos. 1, 32, 33, 44, 51 and 138)

Considered in Committee.[Progress 9 May.]

[MR. HAROLD WALKER in the Chair]

Ordered,
That the order in which proceedings in Committee of the whole House on the Finance Bill are to be taken shall be Clause 51, Clause 33, Clause 32, Clause 44, Clause 138, Clause 1.—[Mr. Major]

Orders of the Day — Clause 44

CLOSE COMPANY LOANS: BUSINESS EXPANSION SCHEME.

Mr. Chris Smith: I beg to move amendment No. 4, in page 32, line 14, leave out `14th March 1989' and insert '15th March 1988'.
It is important at the outset to sketch the background to the clause and the amendment that we are discussing. By means of clause 44 the Government are closing a loophole that gives enormous scope for abuse. We welcome the change but we wish to see the restriction biting harder and operating retrospectively to Budget day 1988 rather than Budget day this year.
We have long been highly sceptical of the merits of the business expansion scheme. It was established under the Finance Act 1983, supposedly to encourage risk investment by individuals in new equities. It was designed supposedly to close the equity gap that everyone agreed existed at that stage and that still exists. It provided for substantial tax incentives, with tax relief on income tax at the highest marginal rate. The highest rate is now 40 per cent. At that time it was 60 per cent. It is worth noting that the 60 per cent. provision persisted until 5 October last year, six months after the band itself had disappeared in the Budget changes.
In addition to income tax relief on business expansion scheme investment, there is full capital gains tax relief on disposal, provided that the investment was taken out after 1986. For investment before 1986, slightly different rules apply. In other words, the business expansion scheme gives scope for two lots of tax relief—tax relief on income in relation to the initial investment, and tax relief on capital gains in relation to the profit made by the investment over a five-year period. Not surprisingly, as a result of the generous double relief thereby available, the business expansion scheme has become a means of tax avoidance for higher rate taxpayers rather than of raising capital for risky but good quality new companies.
Last year, in debate on the Floor of the House and in Committee, we spelled out our concerns about the business expansion scheme and the way in which it was developing. We highlighted research which was published last year by the Small Business Research Trust. That research revealed a number of worrying factors in relation to BES investment. First, it noted that there was an increasing use of the business expansion scheme for


asset-backed and non-risky enterprises, predominantly in the wholesale, retail, real estate and leisure sectors of the economy, not in manufacturing.
Secondly, the report revealed that BES investment was increasingly the preserve of top rate taxpayers. It started out in the first year of operation as a relatively low percentage of top rate taxpayers; it is now almost exclusively the preserve of people in that economic bracket.
Thirdly, the Small Business Research Trust revealed that there were profound regional inequalities in BES investment. For example, 51 per cent. of all BES investments and 65 per cent. of invested BES capital went to the south-east and East Anglia between 1983 and 1986—way above the proportion of normal investment and capital in those regions" share of the overall national economy.
Fourthly, the Small Business Research Trust revealed that, as well as having the lion's share of BES investment, the south-east and East Anglia were attracting BES investment funds from the north. In other words, the BES was ensuring a north-south flow of capital, precisely the reverse of what we should be endeavouring to achieve in our economy with an underheated north and an overheated south. Most investors in the BES live in the south-east, but an even higher proportion of BES investment is placed in the south-east.
The authors of the Small Business Research Trust document published last year have since updated their work and, in a report in the Financial Times last Monday, they confirm that changes that were purportedly made by the Government last year to encourage greater investment outside the south-east have not had that effect.
The Financial Times on Monday reports:
A limit of £500,000 per BES issue per year imposed by Mr. Nigel Lawson … in the 1988 Budget
that was the principal change for the better introduced by the Government last year—
will not have much effect, the researchers say. The limit was designed to encourage more investment outside the south-east but the region had 352 investments worth under £500,000 in its first five years out of a national total of 712.
In other words, despite the Government's intention of using the £500,000 limit brought in last year to encourage investment under the BES outside the south-east, it is extremely unlikely, according to the research carried out by Southampton university and the university of Ulster, that it is having that effect.
The fifth point that that report last year drew out was that the cost per job created by BES investment was increasing as the scheme developed year by year. Even in 1983–84, the cost per job created was higher than that for other small firm schemes, and in subsequent years that disparity got worse.
All those criticisms of the BES—the regional inequality, the north-south flow of capital, the increasing use of asset-backed non-risky enterprise, the increasing preserve of the top rate taxpayers and the increase in the cost per job created—still apply. They apply the more so because of the principal change that the Chancellor made last year.
That change was to expand the BES, and the tax relief available under it, to the acquisition and letting of private rented property under the assured tenancy scheme introduced under the Housing Act 1988. The great

majority of BES investment now goes into precisely that form of investment—into the private rented property scheme.
That is not surprising. There is, for a start, a much higher limit on the overall BES investment for private rented property than there is for any other sector, with one exception. That higher limit for private rented property is £5 million per scheme, rather than the limit of £500,000 which exists for other sectors of the economy.
Secondly, investment in property is almost entirely asset-backed; it is far less risky than investment in other sectors. Thirdly, it is virtually entirely non-productive. Fourthly, it rests on the prospect of escalating property values.
The impact of interest rates currently means that property values may not be escalating as fast as they have in the last three years, but that position will not last for ever. Since 1978, the retail price index has risen by just under 100 per cent., whereas property values have risen by nearly 400 per cent. The return from investment in property, as opposed to investment in most other sectors of the economy, is considerably more lucrative.
Investment under the private rented property scheme of the BES is based on assured tenancies, which in fact are anything but assured. For example, schedule 2 of the Housing Act 1988, which applies specifically to assured tenancies, reveals that there are 16 different grounds on which a landlord letting property under assured tenancy rules can obtain possession of that property from the tenant.
Indeed, those facts were spelled out in many of the documents promoting BES investment put out by BES financiers during the last year, and I will give just one example. Chancery Securities plc, in its description of the investment that is available to the BES investor, sets out in clear detail the grounds for claiming possession, either on mandatory or discretionary grounds, as spelled out in the Housing Act.
It is clear from the way in which BES investment in private rented property has been marketed that investors are expected to use those grounds to obtain possession from tenants when they wish to do so. Those same prospectus spell out the ease with which a BES company can at the end of the five-year period, after which capital gains tax relief becomes available, transfer the property that it owns, thereby releasing the capital gains to the benefit of its investors.
The Johnson Fry plc "Bulletin" for July 1988 set out on page 6 the details of how it is effectively possible to buy out tenants at the end of a five-year period. The Assured Property Management plc prospectus sets out a number of exit routes, as it describes them, whereby a company can be sold to a third party for cash, exchanged for shares in another company, or its assets realised and the proceeds distributed to its shareholders in a liquidation. Alternatively, it is suggested that the company might seek a public quotation on the stock market and merge with other companies for that purpose. A variety of different devices are available whereby a BES company's profits can be realised at the end of the five-year period, thereby freeing the investment for profiteering by its individual investors.
The entire scheme is a recipe for bad landlordism, for tenant insecurity, and for pocketfuls of tax relief for top rate taxpayers. When that change to the scheme was


announced in last year's Budget and private rented property was included, even the Evening Standard noted that various commentators were saying that the scheme
could become Britain's number one tax shelter.
Referring to the provision for private rented property, the article concluded:
Rachman, one suspects, would not have been slow to take advantage of the scheme if it had been around in the 1960s.
The predictions made in the Evening Standard in March 1988 are coming true. The opportunities offered by the BES to invest in private rented property have totally distorted the BES market. The vast majority of such investment is now being made in assured tenancy properties. That is the background to the specific subject of the clause and the amendment.

Mr. Matthew Carrington: The hon. Gentleman makes a number of allegations about BES landlords. Can he produce evidence to show that BES landlords are behaving anything remotely like the way in which Rachman behaved?

Mr. Smith: The hon. Gentleman represents a constituency in which a number of private landlords already operate, so he ought to know the answer to that question better than most.

Mr. Carrington: I do.

Mr. Smith: The BES scheme offers an opportunity for bad landlordism in a way that no previous tax shelter opportunity did. The hon. Gentleman will be aware that, because of the five-year rule applying to BES investments, there is no point in a landlord seeking to regain possession of his property during the first year of the scheme's operation —and it is only in its first year of operation now. Only in the fifth year will such action have any point. I suspect that landlords who have established property under the BES will use all sorts of devices to get their tenants out. I also suspect that a good deal of that will be happening in the hon. Gentleman's constituency, and his constituents—who, we hope, will have voted in a different Member of Parliament by then—will doubtless reflect on his remarks.
4.45 pm
It has become obvious over the past year that a massive abuse has been in operation—even by the standards of the already "abusive" device of the private rented property scheme. Through the use of a close company structure with a total of nine shareholders, tax relief was becoming available not only on BES investment itself, but on the interest on the borrowing. Triple tax relief was available, especially to an investor putting his money into private rented property: relief on income tax on the investment, on income tax on the borrowing and on the tax on the capital gain after five years.
An additional bonus available to the investor, indirectly rather than directly, was the small company rate of corporation tax, which, in the case of close companies, would be applicable rather than the large company rate. Some of the BES marketing plans attempted to link BES investment with pension fund investment to provide even more scope for relief. With such enormous scope for tax relief, it is not surprising that the BES, with the use of the close companies' device, was being marketed aggressively in the latter part of the last financial year, and in the run-up to the Budget in particular.
Let us consider exactly what this scheme would mean. It is worth dwelling in some detail on an example that reveals the exact nature of the abuse. Let us suppose tha someone invests £40,000 of his income, at a top marginal tax rate of 40 per cent., in a BES property venture. On that investment he receives tax relief at the highest marginal rate, amounting to a total relief on the investment of £.16,000.
To invest his £40,000 the investor borrows the entire amount, using the close company device, incurring interest payments of £6,000 a year and receiving tax relief on the interest as well as on the investment. He receives £2,400 a year in tax relief, amounting over five years to a total of £12,000. In the course of five years, he has thus obtained £28,000 in tax relief. The total cost of the interest that he has paid out is £30,000. The net cost to the investor, who has not put one penny of his own money into his BES investment of £40,000, is £2,000.
The investor requires a return of 5 per cent. over five years on that investment to recoup its entire cost. Of course, a growth of only 1 per cent. in that investment is extremely unlikely. Let us be moderate in our projection and assume that the investment grows by 10 per cent. a year. At the end of five years that £40,000 investment is worth £64,420. That represents a capital gain of £24,420. The cost to the investor who has not put in a penny of his own money has been £2,000 over five years and his tax-free capital gain after five years, on a conservative estimate, is £24,420. That profit will have been made almost entirely at the expense of the taxpayer, as it will have been made on the back of £30,000-worth of lax relief by using the device of the close companies system.
The people who were responsible for devising and marketing the operation have not been blind to its attractions for those who invest. Mr. Charles Fry, the chairman of Johnson Fry, which has been in the lead in marketing such operations in the past six months, in a press release on 10 January 1989 said:
The opportunity to invest in our … Companies, with their tax advantages, guarantees and no requirement to invest a penny of the client's own cash, must broaden the market tremendously. Indeed, there would seem to be no way in which a high rate taxpayer can make a case for not investing; unless, of course, he believes that residential property will fall over the next five years.
That is an extremely unlikely eventuality, the risk is extremely low and the use of the close company device has become money for old rope for an investor who takes advantage of it.
I wrote to the Chancellor on 3 March demanding that he took action to close the loophole in the Budget. The final paragraph of my letter stated:
This cannot possibly have been your intention when introducing the scheme last year. Variations of this scheme are being marketed in a pre-Budget frenzy by—amongst others—Johnson Fry, Allied Dunbar and Centreway Development Capital. They are, not surprisingly, being snapped up. Frankly, this is a gravy-train for top-rate taxpayers and has nothing whatsoever to do with risk investment to close the equity gap which is what BES was supposed to be all about when it was launched. I very much hope that you will take action to end this abuse on 14 March.
Therefore, we were very pleased that the Chancellor took action on 14 March to end that abuse. Clause 44 of the Finance Bill does away with close company relief where it is being sought in connection with a BES investment. However, we do not believe that clause 44 goes far enough. That is why we have tabled amendment No. 4, which seeks to backdate the closing of the loophole.
Some will doubtless argue that retrospective tax legislation is always wrong. We agree that in general terms it is to be avoided, but Governments of all political persuasions have used it in the past. Indeed, the Finance Bill contains one provision which might be deemed retrospective. The close company abuse of the business expansion scheme represents so much of an abuse that it is a special case because, first, it is not just one tranche but two of evasive relief. Secondly, quite clearly, when the Government introduced the private rented property scheme last year, they did not intend to enable close companies to be used in that way. Thirdly, the abuse has been especially focused on the assured tenancy operation; to my knowledge it has not been focused on any other sector of the economy using BES provisions. Finally, it has enabled top-rate taxpayers to profiteer at the expense of the generality of ordinary taxpayers.
There is no logical, moral, social or financial justification for that loophole; nor was there any last year. That is why we believe that the loophole should be closed not just now but from last year's Budget day, and I urge my hon. Friends and Conservative Members to support amendment No. 4.

The Financial Secretary to the Treasury (Mr. Norman Lamont): The hon. Member for Islington, South and Finsbury (Mr. Smith) began by saying that the Opposition have long been sceptical of the business expansion scheme. I am not sure how long he meant. I well remember that the Leader of the Opposition welcomed the expansion of the business expansion scheme in 1986 and 1987. It was only in 1988, when we placed some restrictions on the business expansion scheme, that he began to criticise it. When we expanded the scheme he was in favour of it, but when we restricted it a little he became more critical. I do not think that that stands up to what the hon. Gentleman said.
It is a pity that the Opposition cannot take a more positive view of the business expansion scheme, which has altered the venture capital business in Britain. It has encouraged more people to invest in the stock market and in unquoted companies and small businesses. One of its main functions has been to educate the investing community and the City institutions. More than £1 billion has been raised since the scheme started, and that is a welcome development.
The hon. Gentleman quoted a number of points from the Small Business Research Trust reports of last year and this year, but he did not quote from the Peat Marwick study into the scheme that we commissioned and which produced its findings in 1985. It is significant that Peat Marwick discovered a high degree of additionality. It discovered that 70 per cent. of the money invested in small businesses and small companies would never have been raised if the BES had not existed. The figures for individuals were even higher, showing that 94 per cent. of the amount invested by individuals under the BES would not otherwise have been invested in those companies.
Not only has the venture capital business with tax relief developed, but a venture capital business that is not dependent on tax relief has developed in Britain. The venture capital business in Britain is more advanced and bigger than that in other European countries, and is probably the biggest outside the United States.

Mr. Chris Smith: The Financial Secretary cannot get away with continually quoting the Peat Marwick report, which considered only the BES's first year of operation. The Small Business Research Trust report, which was published last year, on the first five years of the scheme's operation revealed that profound changes had been made in its nature and scope since the Peat Marwick report.

Mr. Lamont: The hon. Gentleman has anticipated that I am about to deal with the report of the Small Business Research Trust.

Mr. Denzil Davies: The Financial Secretary said that without tax relief those investments would not have been made. Given that this is a tax-cutting Government and given their dedication to the market and popular capital, why was it necessary to have additional tax relief? Why did not entrepreneurs invest anyway?

5 pm

Mr. Lamont: For many years, institutions have been geared to stock market investment. Britain has been hampered by a lack of development institutions investing directly in unquoted companies. Although we have a highly developed capital market for large business, the fact that the capital market has not functioned quite so well for small and unquoted businesses has been recognised as a long-standing problem.
The hon. Member for Islington, South and Finsbury referred to a number of comments made by the Small Business Research Trust. It said that the BES had produced more investment in the south-east. That may be regrettable, but it is hardly surprising, because the report states that there are more entrepreneurs and industry in the south. A common feature of national tax allowances is that take-up is greatest in the south-east. The limit on the size of investment to £500,000 that we made last year may, in the long term, spread investment more widely. The assured tenancy is already spreading interest more widely. The hon. Gentleman is not in favour of the extension of the BES to assured tenancies, but—perhaps to a surprising degree—it is producing much interest in property investment not only in the south-east but in the north and Scotland. There have been many BES schemes for housing in the regions and Scotland.
The other point that the hon. Member for Islington, South and Finsbury made about the Small Business Research Trust report was the cost per job of the BES. The BES is not, and was never intended to be, a regional or employment aid. It is designed to encourage entrepreneurship and investment in small companies.
Last year, when we made changes to the assured tenancy and introduced the £500,000 cap, some people predicted that, taken together, the two measures would effectively mean the end of the BES as a source of equity finance for non-assured tenancy companies. It was thought that they would swamp the BES, but that has not happened. Preliminary figures show that over £50 million was raised by BES trading companies. Of course, a considerable amount of that has gone into assured tenancies—and we are pleased about that—but £50 million is a lot of money when one bears in mind that it has been invested in projects with an investment limit of £500,000.
Interestingly, the latest figures show that investment in projects of £500,000 and less has held up extraordinarily


well and is higher than two years ago, which is an encouraging development. As my hon. Friends will recall, we made that change because we thought that the purpose of this tax relief should be to concentrate help on the smallest companies. To a considerable extent, the signs are that that is beginning to happen.

Mr. David Shaw: Will my hon. Friend accept, from a practitioner who has started new companies under the BES and been involved in companies that would not have started without it, that it has been a major success? It has helped many companies get going for the first time that would not otherwise have done so. It has helped many young people to get into business who would have been unable to do so because they did not have a track record.
Does my hon. Friend accept—he mentioned this during consideration of the Finance Bill in Committee last year —that the £500,000 limit needs to be kept under constant review so that it can be improved to enable more people to put more money into high-risk companies?

Mr. Lamont: We shall keep the £500,000 cap under review. We made many changes to the BES last year and therefore wanted it to settle down a bit. One of the criticisms that have been made of us, which is quite telling, is that we have made an awful lot of changes. There is something to be said for letting the scheme settle down. My hon. Friend rightly said that the £500,000 cap must be judged not only against the size of a business and inflation but against the costs of making a prospectus issue, which is the point that my hon. Friend had in mind.
We estimate that in 1988–89 about £400 million was raised for the scheme, a large part of which was invested in private renting, which has built up more rapidly than we forecast. It is too soon to know how much was raised privately for assured tenancies, but the signs are that many schemes were set up by small groups of individuals. The money will go to a wide variety of properties over a wide geographical spread. The precise number of dwellings provided depends on the price paid, but it could easily be in excess of 6,000. The first BES rented homes are available, so the benefits of the policy are already being felt.
The reason for such tax relief is similar to the answer to the question asked by the right hon. Member for Llanelli (Mr. Davies) about encouraging people to invest in small companies—to alter attitudes and investing habits. For decades, there has been a hostile climate to investment in privately rented property, which is why we introduced this relief. We are pleased that it has been dramatically successful.
One development that has not been so welcome, which leads me to the proposed change, is that a substantial proportion of the money raised this year was invested in public offers that made use of close controlled companies. Under existing law, an individual can obtain tax relief on the interest paid on loans taken out by shares in a close company. Interest relief is important to help close companies, which are often small family concerns, raise money for growth. Previously, the relief was available even if shares qualified for tax relief under the BES. The combination of tax relief on the investment and the interest is excessive. The schemes that were being marketed were not small family businesses for which interest relief was justified but artificial arrangements. A degree of ingenuity was used to create the schemes, but they were

artificial. I agree with the hon. Member for Islington, South and Finsbury that this relief is excessive, which is why we have decided to end it.
Amendment No. 4 goes further and removes interest relief for shares acquired on or after 15 March. The hon. Gentleman will not be surprised to hear that I do not think that that could be justified. I may object to the success of tax relief, but there is no doubt that the people who framed the schemes acted within the law. The development of and rush of money into this device occurred in the last couple of months of the financial year. It was good of the hon. Gentleman to write to us on 3 March, but it was only about a week later that we chose to act. The provision would have been retrospective if we had brought it in before the end of the financial year. I do not think that that could have been justified.
The hon. Gentleman has said that there are cases in which retrospection can be justified. Those cases are rare and in tax matters, the only circumstance in which retrospection can be justified is where it remedies a technical defect so that the law is altered retrospectively to what everyone thought it was. Occasionally, there have been such alterations in tax law. However, one cannot penalise individuals who have made investments and commercial decisions on the basis of existing law. It is up to Parliament to ensure that the law is right and that is why we propose to alter the relief, which is excessive—as the Opposition say.

Mr. Chris Smith: The Financial Secretary made an interesting point when he said that retrospection appeared to be sensible only when it was a matter of altering the law to be what everyone thought it was. He has already admitted that it was only through the ingenuity of certain individuals and financial houses that the close companies route was discovered last year. It was only in the last couple of months before the Budget that there was a sudden marketing of that route as an option. Are those not precisely the circumstances that the Financial Secretary has said would justify retrospective legislation?

Mr. Lamont: No. The people who used the scheme were quite clear about the law and felt that they were using the law in a legitimate way—as they were. But the tax relief available was excessive. That was a new phenomenon. The hon. Gentleman said that he had spotted it, although he did not write to us until 3 March. It was very much a rush of money in the last two or three months before the Budget. I should point out that the tax loss was about £5 million a year, but I do not think that the principle can be compromised by the amount of money, because the principle itself is important. That is why I cannot accept the Opposition amendment, although we favour the ending of this excessive relief.

Mr. A. J. Beith: I share the Minister's view in one particular. I do not think that it would be right to accept a retrospective amendment. I agree with hon. Members of both parties who have spoken so far that—

Mr. John Battle: A typical Liberal.

Mr. Beith: It is typically Liberal. I do not know why it should be thought funny or undesirable that all members of the Committee should agree. Many people outside the House would find their lives easier if all hon. Members


could agree on more matters. On matters of tax law, people would find their lives simpler if we could reach a reasonable degree of agreement.
It is agreed generally that the ability to take advantage of close company tax relief and the business expansion scheme tax relief at the same time provides an unacceptable degree of tax relief. It is not odd that we all agree on that. However, the difference between us on retrospection is important. As a typical Liberal, I believe in the rule of law, that people should be able to know what the law is and that they should not be penalised if they abided by the law as it was at the time. I know that that is not the view of the Labour party and that if there were a Labour Government, they might wish to legislate retrospectively on a variety of matters. Clearly, the Labour party believes that retrospection is undesirable, but I take a stronger stand against it.
Let us consider the Secretary of State for the Environment. If we were to accept the proposition that we should all be happy that the law was changed if it turned out not to be what the Government thought it was, the Secretary of State for the Environment would be here day after day because he is always getting the law wrong—as he has this week. He would constantly wish to indemnify himself by retrospective legislation. The Financial Secretary went too far when he said that it seemed reasonable to have retrospective legislation when it was a question of what people thought the law was at the time. The law is what it says. It may be that no one noticed that the close company provisions could be tied up with the business expansion scheme, but that was within the law. If the Inland Revenue had looked it up in its books, it would have been found to be the law. The final judgment would be for the courts, but the Revenue would have had to accept that that was the law and that it simply had not noticed what it was. The proposition for retrospective legislation to bring the law back to what people thought it was is dangerous and I hope that the Financial Secretary will revise his form of words in future speeches. I cannot support the Labour amendment, although I share the objection to the abuse.

Mr. Norman Lamont: I must make myself clear. The form of words I used was that the only examples I could think of where retrospection had been used in recent years in tax law were of the kind I described. I would, of course, in no way advocate retrospection that had an adverse effect on individuals.

Mr. Beith: There is an interesting example of retrospection going through the House at present, which is the Police Officers (Central Services) Bill, which contains retrospective provisions deeming the law some years ago to have been what it is now and which have been included because they are thought to be to the benefit of individuals. Retrospection is dangerous territory and we are right to keep out of it until there are overwhelming reasons for it, which are rare.
I do not share the Labour party's general hostility to the principles behind the business expansion scheme. There are many things wrong with it, but it is highly desirable that we should encourage more direct investment in industry and business, that we should widen the range

of shareholders and that we should widen the sources from which venture capital can come to help small businesses in particular. The scheme has had a number of serious shortcomings, although none of them seems to add up to a reason not to persist in trying to bring its advantages to those for whom it was originally intended.
I hope that the Government will accept that there are a number of loopholes apart from the one with which they have dealt. One has been mentioned already, which is the unsatisfactory aspect of the use of the business expansion scheme for assured tenancies. It would be open to a company whose main business activity was to acquire rented property and rent it out under the business expansion scheme to put up the rents after five years to such a grotesque extent that no tenant would wish to remain. By that means, the company could acquire properties quickly and dispose of them, thus defeating the Government's objective for the scheme to be a means of attracting venture capital into privately rented housing.
Again, I have a different approach from some Labour Members. It is desirable to attract more capital to rented housing because there is a great shortage of it. There are several ways in which we could deal with that shortage. More public housing could be provided—I object to the Government's great restriction on the provision of publicly rented housing—but the private sector has a part to play. The rules of the business expansion scheme provide insufficient protection and that is why I tabled amendment No. 6, whose purpose is to ensure that the business expansion scheme relief will not go to landlords whose assured tenancy provisions include an opportunity for a rent review at the end of five years, taking rents above the market level. I hope that the Financial Secretary will look more carefully at that aspect of the business expansion scheme.
It would also be desirable for the Financial Secretary and his colleagues to look at other ways of making the scheme attractive to non-property companies. Although there is merit in expanding the rented housing sector, it is so much more attractive an investment, because it combines the reliefs with the tangible assets of property, that the purpose of the scheme—to bring venture capital to risk areas of manufacturing industry—is likely to be wholly defeated. The capacity of the business expansion scheme to attract new capital will be largely used up in the area where the risks are least and the potential gains are greatest. The Minister should recognise that and do something about it.
We suggest that the rate of tax relief on schemes involving property should not be as high as that on the rest of the business expansion scheme. At the moment, the scheme is heavily tilted towards property investment.
As was spelt out clearly in an article in the Financial Times, the scheme is still not working to the benefit of the regions in which there is a serious need for venture capital for new businesses—particularly areas such as the north of England. It is noticeable that, even with a £500,000 limit, the south-east has almost 50 per cent. of the qualifying investments, and some of the capital for those investments comes from the very regions where it is most needed.
One of the failings of our economy is that we still do not seem to be able to relate capital generated in deprived regions to investment in an expansion of those regions. Some of the regions with the most serious economic problems—the north of England, Scotland and Wales—have a strong tradition of savings; a degree of capital is


maintained by the thrifty and careful. An obvious illustration of that is the power and strength of the Trustee Savings bank in Scotland, which testifies to the willingness of the Scottish people to save.
We have somehow failed to match savings and investment in business in the regions where it is most needed. The business expansion scheme should be the vehicle for that purpose, but it is not yet meeting the needs.
I hope that the Minister will consider ways of making the business expansion scheme more effective and less heavily tilted towards investment in property. If he does not do that, it will cease to fulfil its most important purpose. Having said that, I must advise my right hon. Friend and hon. Friends to oppose amendment No. 4 because it would yet again introduce retrospective legislation.

Mr. Battle: We are entitled to ask for a clear and detailed statement of the evidence of the impact of the business expansion scheme, and what contribution it is making to the economic restructuring that we all know is taking place. Is it contributing to geographically unequal and uneven economic development? The Financial Secretary said that the scheme was not an aid to tackle unemployment or an instrument of regional aid. That being so, where is the investment going and what sort of businesses are being invested in? To use a word that the Government regularly use, where is the targeting in this instrument of intervention?
The business expansion scheme is beginning to expose not only the Govenment's total lack of regional policy but the fact that the only instrument of intervention that they are prepared to use is tax relief that is indiscriminate except that it goes to those with the most means. It is ironic that the only form of intervention that the Government will make in their free market experiment is by means of tax relief to those who do not need it.
Where is the detailed evidence of the effects of the business expansion scheme? I seem to remember that the Government were very concerned about the spending of public money locally when it came to another instrument of intervention—urban policy and the urban programme. Let me give an example from my own city of Leeds, where the urban programme money accounted for 1 per cent. of the council's budget, or £4 million a year. Yet two years ago the city council, the voluntary bodies and the private sector bodies which took funds in partnership from the urban programme were required to fill in forms to spell out precisely how every penny of that money had been spent. I am inclined to ask the Financial Secretary to provide us with a similar annual monitoring report on the business expansion scheme. As tax relief, the money comes from the Treasury; it is public money and we ought to be able to ask that it be accounted for.
I agree with my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) that the research done at Southampton university and at the university of Ulster at Jordanstown shows not that the scheme has proved to be a neutral or indiscriminate form of intervention but that it has reinforced the existing social and economic divisions in our society. It has acted as a bulwark in building those divisions into our economic structure. In other words, the BES is worsening the north-south divide in Britain, which seems to be the opposite of the Government's declared intention.
There is a drift from north to south in equity investment raised under the business expansion scheme, and the researchers at Southampton are reported as having said:
In terms of its geographical impact, the BES is reinforcing the economic advantages of southern England and discriminating against the economically-lagging regions of northern Britain.
Apparently, the research shows
a difference in the type and quality of investments, with more `sunrise' and service-based investments in the south-east compared with more of the older type of manufacturing investments in the north. The scheme is not therefore helping the north to restructure and widen its industrial base".
At the turn of the century, Leeds was a city of 5,500 firms. It was not dominated by one industry or one company. It was built of medium-sized and small family firms spread across the manufacturing sector—in textiles, engineering and in printing in particular. With the restructuring of the economy that has occurred during the past 20 years, many of those manufacturing firms have been taken over or rescheduled—"rationalised", as the phrase went. Jobs have been lost and plants and factories closed.
With the decline of the manufacturing sector, there has been a clear shift to the service sector. Although there was an expansion of the public service sector in the 1970s, more recently it is the financial services sector that has expanded and developed. That has done nothing to tackle the unemployment that has resulted from the decline of the manufacturing base in cities such as Leeds. Jobs are supposed to have been "recreated" in the service sector. In the 1970s, 17,500 jobs in manufacturing were lost in Leeds and in the same decade, 17,500 new jobs became available in the service sector. The difficulty was, that many of the new jobs were temporary part-time jobs, and even lower-paid than the jobs in manufacturing had been.
Such developments have not helped to strengthen and regenerate the economy. Instead, they have built on the divisions and contributed to the continued existence of classic low-wage economies such as that of West Yorkshire. They have done nothing to take such regions up to the wealth of the M4 belt, for example. It is interesting to consider whether the business expansion scheme has had anything like the impact in Yorkshire that it has had on the M4 belt between Reading and London, which is now one of the wealthiest areas in Europe. That is the real question that the Government have to answer. Is the scheme being targeted? Is it merely reinforcing economic divisions? Is it contributing to growth throughout the economy and for all those in Britain, or is it only of benefit to a few in the south east who latch on to it?
A second aspect of the role of the BES should be monitored. We should consider carefully the measure in last year's Budget, under which the Chancellor applied the relief to the acquisition and management of private rented sector property under the assured tenancy scheme.
I served on the Committee on the Bill that became the Housing Act 1988. I see that the hon. Member for Fulham (Mr. Carrington) has left the Chamber. He seemed to suggest that there was no evidence that the scheme was being misused. We resisted the introduction of the scheme at that time because, while we were discussing the Housing Bill in Committee, at the very same time as the Budget was being presented, we were discussing the fact that a landlord in the City of London was being taken to court


by Chelsea and Kensington council because of the way in which he treated tenants in his properties. That landlord is Mr. Nicholas Hoogstraten.
There was a long trial because it was felt that the way in which he treated his tenants was totally unacceptable. The then Minister with responsibility for housing, who has moved on to the Foreign Office for his efforts, regularly used the phrase in Committee that there should be social, good landlords who do not give people the conditions that that man expected his tenants to live in. All were expecting the outcome of the trial to be that that man would be found guilty for keeping tenants in conditions that they should not be in.
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What was the outcome? Because that man did not have his name on the rent book and used close company structures—he had so many companies set up that the authorities could not catch him under company law—he got away with offences under the housing law. We should pay attention to where the business expansion scheme is being applied. That same person declared on the television that he welcomed the business expansion scheme as a means of extending his property empire. I should be interested to receive a report from the Department spelling out whether parts of that empire have applied for and received money from the business expansion scheme. Clearly, it would be a demonstration that the money is not going to the kinds of people whom even Conservative Members believe should manage housing.

Mr. Chris Smith: My hon. Friend is making a powerful point. However, does he agree that the very nature of the business expansion scheme, involving a tax-free capital gain at the end of five years, will put a powerful momentum into the system to discourage landlords from being good, social landlords and encourage them instead to maximise their profit?

Mr. Battle: I am grateful to my hon. Friend for that intervention. During the debate on the Finance Bill last year, it became clear that the Government's intention was to give the kind of tax concession that my hon. Friend has outlined. It was only then that the real and genuine intentions of the Housing Act were revealed. Throughout the debate, we argued that the Housing Act 1988 was clearly a landlord and property charter. It had nothing to do with giving tenants rights and improving the stock of housing or tackling homelessness. It was about pushing the market place in terms of the provision of housing.
We must examine the concessions that are given under the Treasury's arrangements and the statements that were made in Committee about housing conditions and the need to enable landlords to have more power over their tenants. The Government were nervous simply to let the market rip in terms of being able to treat tenants as they wished. It is worth reminding hon. Members that tenants' rights were significantly eroded under the legislation. As my hon. Friend the Member for Islington, South and Finsbury mentioned, schedule 2 altered the grounds on which a landlord could winkle out tenants. The two grounds were redevelopment and the non-payment of rent.
Despite the fact that a person's rent may not have been paid on time because he was on housing benefit and the money had to be claimed through the local authority and

from the Department, as it stands now, the law says that the landlord can mandatorily evict the tenant and repossess the dwelling. The tenant has lost the right to go to court to appeal and state why he could not pay his rent. Similarly, if a landlord wants to redevelop the property, he must serve notice on the tenant and the tenant must leave, without a right of appeal to ask where they should go. As my hon. Friend suggested the conditions exist for landlords simply to take a tax handout and make a profit on property at the expense of tenants and under the guise of providing housing for the people.
It is incumbent on the Government now to tell us clearly how the close company structure will be used. Will it be, as the Minister said, that the business expansion scheme will be exploited by small groups of individuals? Where is the language of the previous Minister with responsibility for housing, that only those with a track record in tenant management should be allowed to be landlords? That language seems to have disappeared. People can use the business expansion scheme as a means of becoming a landlord.
Is the Minister checking who is receiving the money? Is he checking whether a monitoring report will be plainly published and available to all, so that the money that is spent from the tax system and given in handouts to people to provide money is clearly and publicly accounted for? If not, the Government have no excuse. They can say, "We must welcome the business expansion scheme as a means of intervening in the economy," but we want clear evidence that the intervention is appropriate and that it does something about the uneven and equal development of our economy. We need an assurance that, if it is the Government's intention to free the private sector to provide rented housing for people, it is not simply a cover for people to speculate with and make money from property that they prefer to be kept empty, rather than have people living in conditions that are suitable for the late 20th century in Britain and at a rent that they can afford. If the Minister cannot tell us that he can provide a publicly available monitoring report, there is unfair discrimination going on.
When it comes to local authorities spending public money and budgeting and implementing schemes such as the urban programme, they are expected publicly to account for every penny in a record that is sent to Marsham street. Every tree that is planted under the urban programme is accounted for, and every journey that is made by a mini bus to take elderly people to and from luncheon clubs is accounted for. I do not object to such amounts being accounted for, but I demand parity of treatment of public money as a whole. It will be incumbent upon the Treasury to publish the report and tell us where the business expansion scheme money is going. The Financial Secretary has suggested that, so far, the evidence is conflicting. It would not be too difficult for him to use his civil servants to find out where the money is going and make the details available to all.

Dr. Kim Howells: I have no objection to the business expansion scheme. It seems to be a good idea, especially when we often lack mechanisms for regional aid for areas such as mine. As the Financial Secretary stated, it has a proper, educative role to play in the business community. I have no quarrel with legislating for education of any sort, as long as it is progressive education. Constituencies such as mine have long needed


an expansion of small businesses. They have needed injections of what the Financial Secretary referred to as venture captial to help to diversify our manufacturing and service base. However, I am afraid that the tax relief which should have been focused on small companies as a result of the provision of the business expansion scheme, does not appear to my constituents to be applied precisely to those companies and businesses which could have helped diversification.
The amendment would rectify abuses of tax relief and shift the focus of relief back to those areas for which it was designed in the first place. If the educative role to which the Financial Secretary referred is to function properly, it must begin to show more equitable results in terms of the geographical spread of the investment. I do not fully understand why the regional disparities which have already been referred to should exist. I trust that the Financial Secretary is not employing any kind of genetic basis to his argument about why the take-up should be greater in the south-east than, for example, Scotland or the north of England?

The Chief Secretary to the Treasury (Mr. John Major): One reason is that there are more people in the south-east.

Dr. Howells: Let me modify that and say that proportionately the take-up is not so great.
The object must be to close the loopholes which appear to be preventing the business expansion scheme from fulfilling the aims for which it was first designed. I fully appreciate that the business risk will continue to be greater in areas on the so-called periphery of the British economy—for example, in coalfields—where there continue to be declining staple industries. We hope that the scheme will work to rectify that situation.
The business expansion scheme should be, and could still be, a boon, although not a great boon, to constituencies such as mine. However, I am afraid that it is not viewed in that way in my constituency. I am afraid that it is seen as another way of massaging the profits of those concerns and businesses in the south-east that do not fall into the original categories for which the BES was designed.
My constituency would like the BES to help push it even further along the road of the remarkable transformation that it has already experienced during and since the decline of its basic industries.
I believe that the BES should help to revive that spirit of innovation—often a small but vigorous spirit of innovation—that makes a reality in terms of new products and jobs of the brave title, "venture capital". The amendment serves to remind us of the original purpose and would bring some discipline back into the business expansion scheme, which would be most welcome in constituencies such as mine.

Mr. Peter L. Pike: I intend to speak briefly on the amendment moved by my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith). I shall be echoing some of the comments made by my hon. Friend the Member for Pontypridd (Dr. Howells). My hon. Friend the Member for Leeds, West (Mr. Battle) spoke with considerable expertise, having served on the Committee that considered the Housing Bill, which created the assured tenancies, and which, in turn, was one of the reasons that the business expansion scheme has proved to be a boon. My hon. Friend was also involved in

housing matters in Leeds prior to becoming a Member of Parliament. I believe that my hon. Friend made important points that the Financial Secretary should consider. Even if he does not respond to them today, they are worth considering in depth. The Department of the Environment should also consider some of the implications of my hon. Friend's comments.
I, too, have some fears that some of the Government's assurances at the time that the Housing Bill was going through Parliament last year have not been fulfilled under the business expansion scheme, and that the scheme has been used in a way that was not anticipated.
I recognise that the amendment seeks to change the effective date of the blocking of a loophole. We all recognise that the Government have acted correctly, as it would have been completely wrong to allow people to get a tax concession on their investment and to receive additional tax relief if they were borrowing money to invest. The debate today is about whether the blocking of the loophole should be backdated for 12 months. One must remember that, when there is such an investment in property, a capital growth is almost assured. There has been continued capital growth in housing property over many years. In such a scheme, the investor would make a considerable amount of money.
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I am not completely opposed to the principle of the business expansion scheme, because it has some welcome features. I have recognised for many years that one of our failings is that we make it extremely difficult for venture capital to be invested. At times our actions militate against venture capital. This scheme goes part of the way towards rectifying that. One of the problems of getting investment, for example, into industry is that we fail to take long-term investment views in the same way as our competitors in other countries, especially those in Germany. It is regrettable that to some extent our financial institutions militate against that.
We want to see investment in our areas, so it is important that we have a scheme such as the BES. However, we want investment in sectors that will create jobs and will help to rectify the balance of payments situation. We should get our manufacturing industries on to a better basis. It is appalling that we still import so much more than we export. After all, at the end of the day, this nation's bread and butter depends on its manufacturing industries.
Investing in assured tenancies by means of the business expansion scheme, which appears to be the main issue emerging in the debate, does not create jobs in the way in which we would wish. Of course, last year a £500,000 limit was introduced on the business expansion scheme, but there was an extension to £5 million for property. One could have argued that it was wrong to do that. One must of course ensure that the system is not abused and money wrongly made by receiving tax concessions. The least worthy cause was allowing people to invest in the private rented sector. Some of us fear that, perhaps, the Government, with their determination and obsession for creating a private rented sector, have had to consider means whereby people can put money into it.
I was surprised that in my constituency the business expansion scheme and the Housing Act 1988 have been used. We have surplus housing stock in Burnley of some 6 per cent., both in the private and public sectors. There are


semi-detached houses on council estates and private houses standing empty because of the declining population. I was surprised that a company was buying every property initially under £10,000, then £20,000 and now up to £30,000. To many hon. Members those figures will appear surprising, but in an area such as mine a house costing £30,000 is expensive. That company, Northern Renewals, is buying those houses and then improving them. I do not criticise it, because the agents involved, Ingham and Bulcock, are a reputable company. I shall be meeting them in a week's time to discuss their plans. I am criticising the Government for making that scheme available, because I do not believe it is needed.
I recognise that the company must make management judgments. I believe, however, that it may have made a wrong judgment, because it is difficult to believe that it will find the tenants for those houses. I recognise, however—the Government will say this—that it will stop some houses becoming derelict and it will ensure that work is carried out on those old stone-built terrace houses and stop them declining. If that happens, I shall welcome it.
However, instead of the tax concession being used in that way, I would prefer it to be used to give money for grants to enable people to buy such houses and to improve them. Many people do not buy such houses because of the non-availability of improvement or repair grants with which to do them up.
Because of the laws of supply and demand, another problem that is caused when companies buy houses is that they increase demand, and that is bound to increase the price of houses and to reduce the housing stock available to younger married couples.
As the debate has made clear, there has been a considerable growth in and use of the business expansion scheme, especially in the past few months, and I am not surprised by that, because the growth has been the result of the enactment of the Housing Act 1988 which tied in with last year's Finance Bill. That has led to the surge of investment in this scheme to which the Financial Secretary referred. However, when he replies to the debate, the right hon. Gentleman must say whether he believes that that is what the Government want.
I can see the difficulty about whether the provision should be applied retrospectively. One could argue that point for some considerable time. I recognise that on other occasions we could be arguing equally well against retrospective legislation and that is the danger in advocating an amendment such as this.
However, even more important than the principle of the date is whether the Government really believe that there are any fundamental errors in the business expansion scheme. I am sincere in saying that I am not totally opposed to the scheme and recognise that it has some good points. Nevertheless, I should like it to be used to encourage venture capital and the growth of small manufacturing industries, jobs and employment. I had hoped that it could play a small part in improving our balance of payments and thus the country's financial position. The way in which it is being used for assured tenancies in conjunction with the Housing Act 1988 is not the best way forward.
Although it could be argued that those points are not directly related to the amendment, I hope that the Minister

will recognise that they are important points which could have been argued in a stand part debate. I am glad that those important points have been put on the record and hope that the Financial Secretary will respond to them.

Dr. Lewis Moonie: As the outset it would be churlish not to say that I welcome clause 44 and the Government's attempt to put right a clear wrong in the working of the business expansion scheme, just as in the past they have put right other wrongs in other schemes, especially those relating to forestry and, in 1984, to agriculture.
On the surface, it seemed a perfectly good idea to raise capital for small businesses, to help to create employment and to reward enterprise through encouraging equity investment in what, by the Government's own definition, were higher risk organisations, and to help them, in turn, to acquire money for expansion without the severe loan charges that they would otherwise incur as a result of the Government's high interest rate policy. Therefore, in theory the business expansion scheme is consistent with a strong supply side macro-economic policy. However, problems arise and it is incumbent on us to point them out in the debate.
The cost has been high since tax relief on investment is given at the top rate. Obviously, since the top rate was reduced last year, that cost is less than formerly. However, the scheme has been costly, at over £100 million per year in recent years. It has been used as a tax shelter and for tax avoidance whereas the original intent was to reward and facilitate enterprise. The scheme has been widely abused in speculative building, a sector that is concentrated largely in London and the south-east. Therefore, the scheme has been concentrated on the sector of the economy that is most hurt at present by the supply side constraints and the capacity constraints that we have experienced and which are evident in our current account deficit of over £2 billion last year in materials related to construction. The construction sector is the worst hit sector, and the worst hit area of that worst hit sector is where the money and investment have principally been concentrated in the past year. Therefore, there is a wide distortion in the market and an accentuated drift of investment from Scotland and the north towards London and the south-east.
Because the money has been used largely for speculative building, it is incumbent on the Financial Secretary to try to tell us that this is the best way to invest in house construction and that it is the most cost-effective way of using public money—that is what it amounts to, because of the subsidy that is given. I do not believe that it is the best way. If a similar sum had been invested in the public sector, I believe that we should have seen a far greater return for our money, and housing far more appropriate to the needs of those who are without it at present. That in turn would have served to reduce the capacity constraints that are arising in the south-east.
All that underlines the fact that a poorly directed supply side policy is a danger not a benefit to our economy. The Government are reaping the harvest of their own somewhat narrow definition of supply side policies.
I have referred to the labour and housing shortages in London and the south-east that are a direct result of such policies and to the capacity constraints that are leading to excess imports. At a time when there is a surplus of labour and skills in the north-east and Scotland, surely a proper effective supply side policy would concentrate on the


whole economy; as my hon. Friend the Member for Leeds, West (Mr. Battle) has said, that requires a strong regional policy. However, it also requires investment in other aspects of the supply side, especially in training. We must redress the skills shortages that our economy is now facing and encourage more young people to stay on at school and to go on into higher and further education. We must not forget that we have the lowest levels of participation in higher and further education in western Europe—and that, again, is hurting our economy.

Mr. Rhodri Morgan: Yes, lower than in South Korea.

Dr. Moonie: Yes, we must always remember that labour is as important as capital in supply side economics. The Government are finding that out only too clearly as industrial unrest rises in the economy and as the former surplus of labour is eroded by demographic change.
Much of the United Kingdom is still suffering from under-investment, for example, in our infrastructure. That can be seen most clearly in my own area of Scotland where we have a great need for roads and for a motorway from Leeds to Edinburgh and from Carlisle to Glasgow. We need better intercontinental air links for Scotland and the north-east of England, and electrification of the north-east line, not only to Edinburgh as intended, but further north to Aberdeen and Inverness.
An effective supply side policy requires proper regional development otherwise the shortage of capacity and the overheating in the south-east, which is slowing down the movement of people and goods, which London is now experiencing, and which has been mentioned by many manufacturers as a key element in their rising costs, will rapidly worsen until London will start to choke to death under the burden of its own population and enterprise. That is the real challenge to the Government on the supply side which, to date, the business expansion scheme has failed to address.
The Financial Secretary said that in the past the Opposition have been inconsistent and that we now appear to criticise a scheme that we formerly supported. There is no inconsistency. It was right to support what was, after all, the only limited measure of help that was being given to help industry to expand. If it is a question of take it or leave it, thanks very much, we will take it. However, surely it is also right for us to conduct a proper critical analysis of what has happened as a result of the implementation of the policy. We must point to deficiencies in their policy and ask the Government to come forward with some means of redressing them.
The principle was not unsound. It was supported by people such as myself when I was in local government before I came to this place. When I was one of the trustees of our pension fund in Fife regional council, I supported its investment in venture capital schemes. The only money going into venture capital schemes in Scotland at that time came from local authorities. It certainly did not come from the private sector. We welcomed this as a principle and a means of perhaps enticing more money into valuable areas. Unfortunately, it has turned out to be a shyster's charter and a home for fast buck merchants that bedevils our economy.
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Yesterday, in another debate, I criticised the principle of widening tax rates on income. I still believe that this scheme has produced more problems than it has solved, as has the scheme about which I talked yesterday. It needs to be modified, if not abolished. It is a warning to us to be careful when we try to influence market decisions in this manner.
I have welcomed clause 44 and I also support the amendment of my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). I do so for one simple reason. I believe that a genuine mistake was made and that the Government's intention was to ensure that the scheme had its present and not its past form. It is wrong that people should be allowed to profit doubly from a mistake such as this. Although I would not normally support retrospective legislation, there are reasonable grounds for us to do so tonight.

Mr. Morgan: The Opposition are trying to put over the fact that we have sought to give the business expansion scheme a fair trial. We are expressing on behalf of the communities that we represent Leeds, Kirkcaldy, Pontypridd and Cardiff—

Mr. Dennis Turner: And Wolverhampton.

Mr. Morgan: I am talking only about my hon. Friends who have spoken. We have given the business expansion scheme a fair trial, but have had to draw a sorry conclusion about it.
There are Conservative Members present, although not many seem to want to speak. That could be for two possible reasons: first, that there is a news blackout on "Today in Parliament" and secondly, that they are deeply ashamed of the performance of the business expansion scheme because they know that it has not achieved what it was cracked up to do.
The Financial Secretary was good enough to agree that when the business expansion scheme was first introduced, the Leader of the Opposition welcomed it. Certainly, when I came to the House I said that I had been a fan of the scheme. Many others, including my hon. Friend the Member for Kirkcaldy (Dr. Moonie) also said that they wanted the business expansion scheme to be given a fair trial. The scheme was supposed to encourage people to take risks with their money in a way that would contribute to the expansion of enterprise in this country and, therefore, to the expansion of jobs and the correction of our chronic balance of payments deficit.
The Financial Secretary also said that he thought that the business expansion scheme had been part of the amazing resurgence of venture capital industry in this country. He boasted that we had a venture capital industry that was bigger than that of any other European country and second only to the United States of America. He completely misunderstands what the business expansion scheme was originally cracked up to do and the difference between venture capital and seed capital.
The business expansion scheme is not about venture capital. The companies involved in it are far too small and young. By and large, the gap that the business expansion scheme was supposed to fill was the seed capital gap and not the venture capital gap. The scheme was supposed to say to people, "Would you like to put your money at risk? You could lose the lot or make a lot of money. This is not


a safe investment, and if you want a safe investment you should put your money in the Post Office. This is a high risk investment." High-risk investment is for companies that either do not yet have products to market, or that have just got a product to the market place that still needs an enormous amount of working capital spent on it to market it properly so that it is capable of being sold overseas, not merely within the company's home town or region.
These are not the sort of industries that have been funded by the business expansion scheme. The scheme should be a million miles away from putting money into old people's homes, private cleaning and contracting companies and other enterprises that are largely asset based. It should be a million miles, if not light years, away from putting money into the provision of private residential accommodation under the assured tenancy scheme.
This is one of the failures of the scheme and I hope that the Minister will address that problem when he returns to the Dispatch Box. If the scheme was supposed to involve venture capital, surely, there has been a complete misunderstanding. We should have been talking about high-risk, high-growth companies, which could be funded and from which the investor's money could either be returned 10 times over at the end of five or seven years, or he could lose the large bulk of it, if not the lot. Such companies have not benefited from the scheme.
We have to educate the Financial Secretary about the regions. He has failed to understand our point about venture and seed capital. He has also failed to understand our point about regional drift. He does not have the facts straight in his head about this country's geography. When asked why more than 50 per cent. of the schemes and more than 65 per cent. of the money had been invested in enterprises based in the south-east and East Anglia, which we considered to be one of the scheme's failings, he said that there was more business in those regions. In response to my hon. Friend the Member for Pontypridd (Dr. Howells), he said that there were more people in those regions.
The Financial Secretary should listen to the facts about this country's geography. The number of people who live in the south-east and East Anglia totals about 19·5 million, which is almost one third—33 per cent. —of the country's population. The fact that 65 per cent. of the money is invested in the south-east and East Anglia, which is where 33 per cent. of the population live, creates a massive disparity of almost 100 per cent. between the regional share of this country's population in the south-east and East Anglia and the money invested there under the business expansion scheme. That is a massive failure of the scheme and it is no good his saying that there is more business in the south-east. That is palpably not true. There is no evidence to suggest that there are fewer new business formations or enterprises in the outer regions of the country than in the south-east and East Anglia. However, there is more capital in the south-east.
The fundamental problem with the business expansion scheme is that it is not attuned to where there is enterprise, to the needs of the risk taker, inventor or person willing to invest in a new business, but to the needs of capital. It is attuned to the needs of people with money in their pockets.
They are told that they can double their money through the scheme, that they will not have to take any more risks than they want, and that the taxpayer will give them a bonus on top of that.
The regional disparity in this country is not simply that the south-east of England is a large region, although clearly it is. In fact, it is the biggest region. If East Anglia is thrown in, the south-east region contains one third of the population. Another disparity is the fact that it contains about 50 per cent. of the middle classes and 90 per cent. of the wealthy people. It is where, by and large, the millionaires live, apart from a few wealthy landowners who live in Scotland and the south-west. If a scheme is attuned to the needs of millionaires, and people interested in the tax breaks for higher rate tax payers, clearly those areas with more wealth will be where it operates most strongly. The scheme is not targeted on areas where there is more enterprise.
There is no evidence of less enterprise in Pontypridd, Kirkcaldy or Cardiff or in the outlying regions. The problem is that those places cannot get together with the owners of capital, because the owners do not live there. In the south-east, capital, is easily available because, historically, it has accumulated there for various reasons —it has agricultural wealth, the capital city is there, Parliament is there, and so on.
If the Government persist in misunderstanding the deeply risk-averse nature of British capitalism—the failure of the business expansion scheme to remedy it over the past five years is further evidence of that misunderstanding—they will never devise a set of policies that will close the trade gap and bring it back to parity and beyond; for we shall need surpluses in the 10 or 15 years after the deficits to pay off the colossal debt that we are now running up.
All Opposition Members were keen to see the BES have a fair trial. We are deeply disappointed by the way in which it has been pushed further in the direction of risk aversion rather than risk taking by the inclusion of residential property under the assured tenancy scheme. Now, even more than before, the BES has become a political gimmick. Last year it meant the Secretary of State for the Environment suddenly reflecting, when considering the Housing Act 1988, that he should not approach the next election without a single scheme having been put in place and with no private capital having flowed into assured tenancies. That would have made him look even more foolish than he usually looks when the courts declare his leaflets illegal. He wanted belts and braces to ensure that a couple of schemes—assured tenancy and private capital funded schemes—were brought forward, thinking that he would not pay for them himself but would get the British taxpayer to do so. Rather than depend on the willingness of British capital to put risk money into private rented property, he decided that, if it were given the extra bonus of a tax break on the top rate, British capital might get some schemes going.
Well, there may be some schemes, so the right hon. Gentleman will be able to claim that there are some at the next election. They cannot be compared on a fair and equal basis with schemes for developing new laser beams or new silicon chip factories that might produce products to sell to Japan or the United States. The BES projects are a straight tax break to ensure that the Secretary of State's few remaining shreds of political reputation can be held together respectably when it comes to writing the next


Tory election manifesto. The scheme always carried the risk of being a political gimmick and this has proved that more true than before.
We are now retrospectively trying to put close companies in order. The Government feared that financial manipulation was going on, and so it was. I welcomed the Financial Secretary's expression of horror at the way in which certain financial middlemen were abusing the scheme, but that is in the nature of the scheme—that is what it is all about. It is not filling the gap that it was meant to fill. It is not putting people into manufacturing industry. In America, a person starting a new silicon chip company can go to his local rotary club or masonic lodge and get people to give him a couple of thousand dollars each to help him get started, knowing that they can lose all the money. That does not happen here, and the BES does not fill that gap.
Instead, curiously, the scheme presents a free gift to a certain breed of financial middlemen who can sell safe little earners—this is supposed to be high-risk new venture capital, but it is proving the reverse. The middlemen promise to fix people up with nice little earners; all they have to do is answer the advertisement, tear off the coupon and a salesman in the latest sharkskin suit will call round to see them. I advise people to watch out for these salesmen.
I said in an earlier intervention that the scheme was providing packed lunches for sharks, but I forgot that I am deeply interested in marine wildlife. I should have said packed lunches for vultures—vulture capital, not venture capital.
The Minister must give serious consideration to the failure of British small businesses to take risks. He must understand that if the money from the tax break goes into residential property, DIY warehouses, old people's homes, and private caterers and contractors, which take over on a sweetheart basis from local authorities and hospitals, that will do nothing to solve our balance of payments. It will redouble all the economic difficulties from which the country has suffered and continues to suffer. We have a£15 billion balance of payments deficit, and this scheme in no way contributes to solving our severe economic problems.

Ms. Diane Abbott: I support the amendment. The extension of the business expansion scheme to private rented accommodation under the assured tenancy arrangements is cruel and irrelevant. It is irrelevant because, as my hon. Friends have already said, the purpose of the scheme was to encourage risk investment and create jobs. It will create very few jobs. It is also irrelevant and cruel because of the effects it will have on the housing market and on people in housing need, especially in London and the south-east.
In London and the south-east, the private housing market has for many years been the prey of sharks, vultures and people such as Rachman. There is already a terrible problem in London; private landlords try to winkle out sitting tenants so that they can sell off flats and transform accommodation into assured tenancies. Now that private landlords receive a tax break to do up such accommodation, the financial pressure on them to get rid of private tenants will be even greater.
I know that the Minister takes no interest in these matters, but he has only to go half a mile down the road to Westminster, Bayswater, Pimlico or Maida Vale to see elderly sitting tenants who have lived all their lives in mansion blocks—many of them in marginal Conservative constituencies—living in fear and leading unhappy lives—

Mr. Morgan: Their Members of Parliament, too.

Ms. Abbott: Indeed. The Minister would not have to go far to find such people, or to find families being harassed by landlords who want to remove them so that they can transform the accommodation to assured tenancies. This tax break will provide an additional financial incentive for such harassment.
The growth of the assured tenancy sector to which this extension of the scheme will lead will make no practical contribution to the housing problems of London. These assured tenancies will be offered at prices way beyond the reach of the average person who works and lives in London. They will be offered to businesses, tourists and rich people who want a pied-a-terre in London. The tenancies do nothing to help the average family who want somewhere to live or the homeless. The scheme will only put money into the pockets of speculators and the heirs of Rachman. To bring it forward under the guise of encouraging enterprise and creating jobs is hypoCritica I, bogus, cruel and irrelevant, and I hope that even at this late stage the Government will see their way clear to withdrawing the idea.

Mr. D. N. Campbell-Savours: I try each year to take an objective position in Budget debates. Over the years I have invariably supported the Government when I thought that they were right, and I have been open in my support; I have been critical when I have thought that they were wrong. Last year we had a debate on these matters. If I recall correctly, we were debating the possibility of abuse of assured tenancies where people might enter into arrangements with those who took out the tenancies over a period of five years and where the investor might have a direct pecuniary and, indeed, occupational interest later.
I persisted in raising the matter last year. If I recall correctly, my hon. Friends may have raised it in Committee upstairs. I persisted in the hope that this year the Minister might be able to report on how things had developed. I should like to know whether abuse has taken place or been reported to him. If it has not been reported, will he consider my original predictions about how the scheme might be abused and make a statement to the House during the debate that may take place on Report? There may not be much chance to discuss the matter in Committee upstairs, and I will not be on that Committee this year.
I want to speak more specifically to the whole question of the intellectual base on which the BES scheme was submitted originally to the House and argued by Ministers publicly. As I understand the Government's position, it is generally that Government need not intervene directly to create jobs, that they can reduce their commitment to regional policy and that, by a system of tax aids, individuals will be given the opportunity to take decisions and invest where, in other conditions and under other Governments, those decisions might be taken by Ministers or by civil servants in conjunction with industrialists.
The premise is that as a substitute for a regional policy of state intervention we should rely on individuals to take decisions which will have the same effect in creating employment in the regions. Ministers will recall that I have supported aspects of the BES scheme over the years. I put it to the Minister today that the scheme is not working in the way that the Government originally hoped it would. They may feel that it has had some success, but a report on the Peat Marwick report of 1986 said:
With the benefit of a longer time-period this report has also been able to reveal the high loss rates amongst fund investments made under the BES (over 50 per cent.) and in the early years of the BES (over one-quarter of investments made in 1983–84 and 22 per cent. of the capital invested in that year had been lost by late 1987). Overall, of the £175 million invested by funds and managed schemes in the seven years to April 1987, 17 per cent. had been lost by late 1987.
As I understand it, that report was fairly favourable to the scheme.
I cannot believe that the Government ever intended such losses on the scheme. That must indicate a deficiency in it. I cannot believe that the Government, if they were being reasonable on these matters, would have been so willing to support some of the schemes. Earlier, there were references to wine merchants and art dealers. I cannot believe that it was ever the intention of Ministers that such people should be involved. The scheme should have been geared far more to manufacturing industry.
The 1986 Peat Marwick report made a point about the regional base for investment. The document from which I am quoting said:
Finally, the report highlights the significant regional inequalities in the impact of the scheme. The South East and East Anglia contain considerably more than their 'fair share' of BES investments relative to their shares of the total stock of UK businesses (51 per cent. of investments and 65 per cent. of the invested capital in the period 1983–84 to 1985–86 inclusive).
The scheme has failed because of its emphasis on the south-east, although I accept that there are pockets of high unemployment in Kent, in some of the Medway towns. I recognise, as I am sure my hon. Friends do, that those problems need resolving. Indeed, Labour's case is that we would single out many of those areas and target them for special treatment. We would ensure that they are given the support that they need to develop.
In wealthy Kent and wealthy south-east England generally, those areas stand out as blots on the employment landscape. In some of them unemployment is as high as it is in Yorkshire and Lancashire. I am sure that the people in Kent, Surrey, Sussex and all those areas would accept that in the main they are affluent counties. Yet they are getting the lion's share of the BES investment. If Ministers want to substitute for a regional policy, by way of state intervention, schemes that are tax-based they must find a regional basis on which to give tax concessions.
I have had correspondence with Ministers who say that it is not possible to build into the tax system a regional basis for tax concessions.I do not subscribe to that. The Prime Minister may have done things that I do not like, but she has proved in many ways that things can be done when the will is there. If Ministers set out to find a way, I am sure that they could establish in finance law principles that would benefit areas of high unemployment through the tax system. In that climate and under that regime, Labour, without any sense of equivocation or adding any

condition, would wholeheartedly support the scheme in the same way as I did when it was much narrower in its early days after its introduction in 1983–84.
There is work that can be done. It would be nice if the Minister, in reply to the debate, could say, "I have never conceded the case before but I will ask my officials to see whether it is possible somehow to incentivise regional investment through the tax system on the basis of a scheme akin to the principles laid down in the business expansion scheme." It might be geared to the manufacturing sector. The Government would not be compromising any principle. They would not be conceding the case for Government intervention in a way that might lead to an ideological backlash from Government supporters or that might offend the views set out in the Conservative campaign guide for the last election when they were preaching vigorously about the need for as little state intervention as possible. I am asking them to use what they accept are the weapons—no, the tools—that the state has at its disposal: that is, a tax system, in trying to drive a greater regional incentive into small business investment.
Another matter irritates me. I want to read to the House an advertisement. This is what discredits Government tax policy. The advertisement was put in by a firm called Johnson Fry Corporate Finance Limited. It is taken from The Times of the—the Economic Secretary smiles. Perhaps he will tell me why he does so or, after I have read this, whether he still feels like smiling.

The Economic Secretary to the Treasury (Mr. Peter Lilley): A sedentary smile.

Mr. Campbell-Savours: That is an original term.
The advertisement appeared in "The Times" of 25 February 1989. Its headline is:
High earner pays no tax".
It goes on to say:
Peter Fletcher is a successful entrepreneur who will earn £200,000 in this tax year. Last year, his tax bill was a frightening £105,000 +. This year Peter will pay nothing at all. He is taking advantage of special tax concessions offered through Business Expansion Schemes (BES) and Enterprise Zone property investment"—
I am not condemning that; I am just drawing attention to the way in which such investment schemes can be abused and how that can anger people such as myself who see the mistreatment of millions of people in our society within tax law and the benefit system—
which together will completely eliminate his tax liability.
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I supported the original enterprise zone proposal, as the Financial Secretary will recall. My efforts were rewarded with one in my constituency which has been a glowing success. I do not dissent from my original view, but, unfortunately, the whole scheme has gone over the top.
The advertisement goes on:
What's more, he won't have to dig deep into his pockets to do this as all his investments are totally self-funding, through specially arranged bank loans.
I understand that, with the support of my hon. Friends, the Government are now closing that gap.
Peter has invested £140,000 in Enterprise Zone property, £40,000 in BES and his remaining tax liability is mopped up by personal allowances and mortgage and pension tax relief.
No doubt my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) will be dealing with those


matters in Committee. I shall not be there to play my part on this occasion, but I am sure that my hon. Friend will make a good job and an effective case.
The advertisement continues:
But good news for the Fletcher family doesn't stop here. Peter's brother Michael, who is 28"—
I presume, a yuppie Porsche man—
works in the City and takes home"—
maybe not—
£35,000 a year, has found that he too can eliminate his entire higher rate tax liability by investing in a Smaller Companies Assured Tenancy (SCAT) BES Scheme, with a 100 per cent. loan.
I understand that that is elegible for tax relief if it is done through a close company.
Michael will receive tax relief on the interest"—
yes, he is doing it; it is coming out now—
on his loan and, in five years' time, he will be able to sell his BES investment, which is not subject to Capital Gains Tax. Charles Fry, Chairman of Johnson Fry,"—
the corporate finance company whose advertisement I am now quoting—
a company that specialises in BES and Enterprise Zone investment, comments 'All higher rate tax payers should be examining BES and Enterprise Zones very closely. The Assured Tenancy Scheme effectively enables investors to invest, at a 40 per cent. discount, in companies that buy and rent out residential property. This is the first year that this type of investment has been available. BES has a £40,000 limit per person, so the wealthier individual should also be looking at Enterprise Zone investment which enjoys full tax relief on approximately 95 per cent. of the investment.'
I am slightly out of order, Sir Michael, but I shall go on.
'One important point to stress, however, is that people should invest now before possible Budget changes. Why pay money to the taxman when you can utilise the same money (without any further capital outlay) to make good quality property investments instead?'
I am sure that my hon. Friend the Member for Hackney, North and Stoke Newington (Ms. Abbott) will find those remarks offensive. She knows what will happen when such tenancies get off the ground. My hon. Friend the Member for Leeds, West (Mr. Battle) turns in his seat to grab my copy of the advertisement. I can tell him that I located it with great difficulty. However, having spent several hours doing so, it now features in every speech that I make wherever I go in the United Kingdom as an example of how tax law has got a little out of hand. It cannot be right for someone to offset a liability to tax on £200,000, taking allowances into account, by using such schemes.
All that I say to Ministers in my modest contribution today is that they should target this scheme more effectively. It should be geared more to genuine service trade and manufacturing industry and it should be limited, perhaps to a lower level than it is today, unless it applies to manufacturing industry in the regions. I am talking about regions or localities of high-level unemployment, depending on how one draws the line. One could almost support an amendment for a considerable extension of the scheme if it had a firm manufacturing regional base. I should be willing to support further and greater tax concessions if that were the case.

Mr. Win Griffiths: I had not intended to intervene and I apologise for not having been here at the start of the debate but I was attending the Select Committee on Education, Science and Arts. I want to ask one or two questions which I hope the Financial Secretary will answer. I apologise if he dealt with them when he opened the debate.
The Government have always been concerned to target help on those who need it most and where it can be most effective, whether it be in housing, industry or social security benefits. Therefore, can the Financial Secretary say how much money has gone to those areas where unemployment is higher than average through the business expansion scheme by way of tax relief, and so on? The Government should be able to do that by reference to travel-to-work areas in the United Kingdom. I should be interested to know whether the Government have any figures about the effectiveness of the business expansion scheme in areas of high unemployment and how that compares with the business expansion scheme in areas where the unemployment rate is below average.
Secondly, how effective has the business expansion scheme been in providing jobs in those sectors which contribute to British exports? It is obvious that, if the Government have two target areas in terms of trying to encourage enterprise and create jobs, they should be those areas where unemployment is highest and those sectors where a contribution can be made to taking on the immense balance of payments problem which the Chancellor's other policies have created.
I hope that the Financial Secretary will be able to give some information on those points and that he will consider a more radical reform of the business expansion scheme to take account of my questions.

Mr. Chris Smith: We have had a wide-ranging and lengthy debate about some of the major issues that lie behind the abuse with which the amendment seeks to deal. The debate has been characterised by the fact that, apart from the Financial Secretary, no Conservative Members have taken part. Clearly, they are not interested in the problems of the BES, in the tax abuse which the clause addresses, in the equity gap which exists or in the desperate need for more investment, especially in the manufacturing sector.
The only Conservative Back Bencher to intervene at all for most of the debate was the hon. Member for Dover (Mr. Shaw), who absented himself for much of the discussion, perhaps to conduct more research with his researcher into the net book agreement. He seemed to imply that he wished the Government to keep under review the £500,000 cap on non-property or shipping-based BES schemes. The Minister said that he would do so. I hope that he will not be tempted too far down that road, because the restriction to £500,000 was welcomed by the Opposition last year and we hope that it will he kept in place.
It is worth noting that the hon. Member for Dover., as he himself said, is an expert on the BES. Last year, when I checked on these matters, I discovered that he was a director of four BES-financed companies—City Gate Estates, Hoskins Brewery, Private Investor Publications and Palladian Estates—all four of them, I am sure, making a major contribution to the manufacturing needs of the nation. He was, in addition, a director of three further companies, all of which were involved in the raising of BES finance. Those were Sabrelance Ltd., Sabrelance Business Service Limited and South Cumbria and North Lancashire Management Limited. He is indeed an expert on the BES, and as a result he appears to be benefiting substantially.
I was disappointed that the Financial Secretary—as he did last year—trotted out the Peat Marwick report, which


dealt only with the first year of operation of the BES. The favourable nature of that report must be modified in the light of further research, especially that done by the Small Business Research Trust, which saw major changes in the nature of BES investment from 1984 to 1988. The trust said in its report:
the economic impact of the scheme is less favourable than suggested by Peat Marwick.
The Financial Secretary must not attempt to convince us that Peat Marwick is the whole picture: it is not. It shows the picture in the initial stages of the BES and not the subsequent development of the scheme.
Many of my hon. Friends have said that we are not opposed in principle to the idea of the BES. However, we object to the way in which the scheme is being used, and the close companies mechanism is the most obvious of the deficiencies in the way in which the BES has turned out since 1984.
6.45 pm
My hon. Friend the Member for Workington (Mr. Campbell-Savours) said, for example, that the BES was not working in the way that had originally been hoped. My hon. Friend the Member for Burnley (Mr. Pike) said that he was not totally opposed to the scheme in its conception and recognised the need to raise capital to close the equity gap. I agree with my hon. Friend in that approach. My hon. Friend the Member for Pontypridd (Dr. Howells) also said that the BES was a good idea.
The problem is that the reality does not match the principles with which the scheme was introduced, the reason being that it has become a device for sheltering high rate taxpayers' incomes. It has become distorted from the original intention of the BES, which was focused on the raising of capital for small-scale risk enterprise.
It has changed in nature. The primary purpose of the scheme now is tax avoidance rather than the raising of equity finance, and the problems that have flowed in train include the north-south flow of funds, the increasing emphasis on property and the increasing emphasis on asset-backed enterprise. The use of the close company device is a clear sign of the problems that come when a good idea turns sour and becomes used entirely for the purposes of tax avoidance.
The debate is primarily about an amendment which seeks to make the closing of the loophole retrospective for a year. Towards the end of his earlier remarks, the Minister—I fear that I must disagree with the hon. Member for Berwick-upon-Tweed (Mr Beith) on this—said that there had been occasions during the last 20 years when retrospective tax legislation had been regarded as worth introducing because the original situation that everyone had assumed to be the case had become distorted.
The use of the close companies device is such an instance. The Minister said that the private rented application of the BES had grown much more quickly than he had forecast this time last year. Indeed, the use of the close company device in the three months leading up to the Budget, specifically linked to the rented accommodation scheme, was not forecast at the time.
Nobody expected that that would happen and nobody realized—certainly not the Financial Secretary—that it could be used in that way. The ingenuity which some

bright financial operators put into developing a device which gave not just the BES tax relief but, in addition, extra slices of tax relief to top rate taxpayers, should not be rewarded; it should be penalised retrospectively.
Let us remind ourselves of the exact nature of the abuse that we are debating. We are talking about a top rate taxpayer who can make a payment of interest over five years of £30,000, can get tax relief in return for that payment of interest of £28,000, making a total payment of only £2,000 in return for an investment worth £40,000. We are therefore referring to somebody who, by that means, makes a profit at the end of the day—tax-free, with no capital gains tax to be paid—of £24,000.
That is only a modest estimate of the increased value of the company's assets. A situation in which an individual can literally make money out of this country's taxpayers must be considered intolerable and be dealt with as severely as possible. That is why, in those special circumstances, we ask the Committee to close that tax loophole retrospectively. Unless the Financial Secretary is prepared to accept our amendment, I shall urge my right hon. and hon. Friends to vote in favour of it.

Mr. Norman Lamont: As the hon. Member for Islington, South and Finsbury (Mr. Smith) observed, the Committee's debate has been very wide-ranging. In fact, the hon. Gentleman's comment is something of an understatement. It emerged from the debate that a number of Opposition Members have some kind things to say about the business expansion scheme. They include the hon. Members for Pontypridd (Dr. Howells), for Burnley (Mr. Pike) and for Workington (Mr. Campbell-Savours) and, to some extent, the hon. Member for Cardiff, West (Mr. Morgan). They all had words of praise for certain aspects of the scheme.
A number of Opposition Members wanted more detail about the scheme's effects, though at the beginning of the debate I outlined the information at my disposal about the direction of the scheme, about the proportion of it devoted to small businesses having a turnover of less than £500,000, and about assured tenancies—and I gave a general report on the scheme's progress.
The hon. Member for Cardiff, West made an interesting speech in which he compared some people with sharks but then withdrew that remark because he rather likes sharks. I was then dismayed that he made a comparison with vultures because I rather like vultures. [HON. MEMBERS: "Oh!"] I spent most of my summer in Crete watching them, and I hope to return to see more of them. I would have preferred the hon. Gentleman to stick to his original metaphor.
The hon. Member for Cardiff, West drew a useful and valid distinction between seed capital and venture capital. He will recall that the business expansion scheme began as a start-up incentive, but the development of the venture capital market since 1983, when we extended the scheme to larger companies, enables us again to place the emphasis on smaller companies having a turnover of less than £500,000, which is more in line with the hon. Gentleman's thoughts in respect of seed capital.
The hon. Gentleman gave several reasons why he feels that the scheme is concentrated in south-east England, and disagreed with my views on that aspect. I was impressed by some of the hon. Gentleman's arguments, but I emphasise that it was never intended or marketed as an instrument of


regional or employment policy. It was always specifically designed as a national economic tool to encourage enterprise.

Mr. Morgan: Our complaint is that the scheme has become an instrument of reverse regional policy.

Mr. Lamont: There is always a tendency for any tax allowance scheme to be taken up in areas where economic activity is at its highest. As the hon. Gentleman said, sometimes take-up occurs where there is more capital available. I agree that it would he better to have a spread of financial services throughout the country, but I feel certain that the scheme has brought benefits to many regions.
The hon. Member for Workington referred to a matter that he raised last year concerning connected persons. I have seen no evidence to support the claim that he makes, but I shall look further into the matter and may write to him.
The hon. Gentleman said that he cites the Johnson Fry advertisement in every speech that he makes, and I hope that he is receiving a commission from that company for doing so, because he seems to be an active salesman for its services. He referred to the tax loopholes that Johnson Fry advertises. When he makes speeches quoting that advertisement, I am sure that he mentions also that it was perfectly possible for higher rate taxpayers to avoid paying any tax under a Labour Government. By using universally available 100 per cent. capital allowances, a higher rate taxpayer could easily avoid paying any tax under Labour, because similar schemes were being marketed at that time.

Mr. John Smith: Those schemes related only to capital allowances.

Mr. Lamont: The right hon. and learned Gentleman makes the point that the schemes related to capital allowances. One hundred per cent. capital allowances were used in conjunction with leasing agreements by higher rate taxpayers to avoid paying tax. That happened frequently under a Labour Government and was a direct response to the very high marginal rates that they imposed.
The debate touched also on assured tenancies and on the Housing Act 1988. The hon. Member for Leeds, West (Mr. Battle) gave several examples of bad landlords, but seemed to argue against any privately rented accommodation, which is where I part company with him. Assured tenancies are subject to general law, which the Housing Act 1988 strengthens both in respect of harassment and illegal eviction, which has led to some recent convictions.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) mentioned the possibility of a rent review provision being used to drive out a tenant. Even at this early stage, I think that the problem mentioned by the hon. Gentleman is unlikely to arise, for there is no evidence to suggest otherwise. However, we shall keep an eye on that aspect.
The Opposition amendment would simply build on clause 44, which will end a tax loophole that has been exploited to excess. The only difference between us is that the Opposition contend that that loophole should be closed retrospectively, but no argument has been advanced to justify that contention. The Government are blocking the loophole because it is now thought to be excessive, but there is no doubt that those who have already exploited it did so perfectly legally, and it would be wholly wrong for Parliament to legislate on it retrospectively. Nothing said

by the Opposition justifies such a draconian measure, and I urge my right hon. and hon. Friends to reject the amendment.

Question put, That the amendment be made:

The Committee divided: Ayes 161, Noes 237.

Division No. 193]
[6.58 pm


AYES


Abbott, Ms Diane
Hood, Jimmy


Adams, Allen (Paisley N)
Howarth, George (Knowsley N)


Allen, Graham
Howells, Dr. Kim (Pontypridd)


Anderson, Donald
Hughes, John (Coventry NE)


Archer, Rt Hon Peter
Hughes, Robert (Aberdeen N)


Armstrong, Hilary
Hughes, Roy (Newport E)


Ashley, Rt Hon Jack
Hughes, Sean (Knowsley S)


Ashton, Joe
Illsley, Eric


Banks, Tony (Newham NW)
Ingram, Adam


Barnes, Harry (Derbyshire NE)
Janner, Greville


Barnes, Mrs Rosie (Greenwich)
Jones, Barry (Alyn &amp; Deeside)


Barron, Kevin
Jones, Ieuan (Ynys Môn)


Battle, John
Jones, Martyn (Clwyd S W)


Beckett, Margaret
Kaufman, Rt Hon Gerald


Bell, Stuart
Kinnock, Rt Hon Neil


Benn, Rt Hon Tony
Lamond, James


Blair, Tony
Leadbitter, Ted


Blunkett, David
Leighton, Ron


Boyes, Roland
Lestor, Joan (Eccles)


Brown, Gordon (D'mline E)
Lewis, Terry


Brown, Nicholas (Newcastle E)
Lloyd, Tony (Stretford)


Buchan, Norman
Lofthouse, Geoffrey


Buckley, George J.
Loyden, Eddie


Campbell, Ron (Blyth Valley)
McAllion, John


Campbell-Savours, D. N.
McAvoy, Thomas


Cartwright, John
McFall, John


Clark, Dr David (S Shields)
McKelvey, William


Clarke, Tom (Monklands W)
Madden, Max


Clay, Bob
Mahon, Mrs Alice


Clelland, David
Marek, Dr John


Clwyd, Mrs Ann
Marshall, Jim (Leicester S)


Cohen, Harry
Meacher, Michael


Cook, Robin (Livingston)
Meale, Alan


Corbett, Robin
Michael, Alun


Corbyn, Jeremy
Michie, Bill (Sheffield Heeley)


Cousins, Jim
Mitchell, Austin (G't Grimsby)


Cryer, Bob
Moonie, Dr Lewis


Cunliffe, Lawrence
Morgan, Rhodri


Darling, Alistair
Morris, Rt Hon A. (W'shawe)


Davies, Rt Hon Denzil (Llanelli)
Morris, Rt Hon J. (Aberavon)


Davies, Ron (Caerphilly)
Mowlam, Marjorie


Davis, Terry (B'ham Hodge H'I)
Mullin, Chris


Dixon, Don
Murphy, Paul


Douglas, Dick
Nellist, Dave


Duffy, A. E. P.
Oakes, Rt Hon Gordon


Eastham, Ken
O'Neill, Martin


Evans, John (St Helens N)
Orme, Rt Hon Stanley


Ewing, Mrs Margaret (Moray)
Pike, Peter L.


Fatchett, Derek
Powell, Ray (Ogmore)


Field, Frank (Birkenhead)
Quin, Ms Joyce


Fisher, Mark
Radice, Giles


Flannery, Martin
Randall, Stuart


Flynn, Paul
Redmond, Martin


Foot, Rt Hon Michael
Rees, Rt Hon Merlyn


Foster, Derek
Reid, Dr John


Foulkes, George
Richardson, Jo


Fraser, John
Roberts, Allan (Bootle)


Fyfe, Maria
Robertson, George


Garrett, John (Norwich South)
Rogers, Allan


Godman, Dr Norman A.
Rooker, Jeff


Gordon, Mildred
Ross, Ernie (Dundee W)


Graham, Thomas
Rowlands, Ted


Grant, Bernie (Tottenham)
Sedgemore, Brian


Griffiths, Win (Bridgend)
Shore, Rt Hon Peter


Grocott, Bruce
Short, Clare


Haynes, Frank
Skinner, Dennis


Healey, Rt Hon Denis
Smith, Andrew (Oxford E)


Henderson, Doug
Smith, C. (Isl'ton &amp; F'bury)


Hinchliffe, David
Smith, Rt Hon J. (Monk'ds E)


Holland, Stuart
Smith, John P.


Home Robertson, John
Snape, Peter






Soley, Clive
Welsh, Michael (Doncaster N)


Spearing, Nigel
Williams, Rt Hon Alan


Steinberg, Gerry
Williams, Alan W. (Carm'then)


Strang, Gavin
Wilson, Brian


Straw, Jack
Winnick, David


Turner, Dennis
Worthington, Tony


Vaz, Keith
Wray, Jimmy


Wall, Pat



Walley, Joan
Tellers for the Ayes:


Wardell, Gareth (Gower)
Mrs. Llin Golding and


Wareing, Robert N.
Mr. Jimmy Dunnachie.


Welsh, Andrew (Angus E)



NOES


Adley, Robert
Fishburn, John Dudley


Aitken, Jonathan
Fookes, Dame Janet


Alexander, Richard
Forman, Nigel


Alison, Rt Hon Michael
Forth, Eric


Amess, David
Fox, Sir Marcus


Amos, Alan
Franks, Cecil


Arbuthnot, James
Freeman, Roger


Ashby, David
French, Douglas


Ashdown, Rt Hon Paddy
Gardiner, George


Atkins, Robert
Garel-Jones, Tristan


Baker, Nicholas (Dorset N)
Gill, Christopher


Banks, Robert (Harrogate)
Glyn, Dr Alan


Batiste, Spencer
Goodhart, Sir Philip


Beaumont-Dark, Anthony
Goodson-Wickes, Dr Charles


Beith, A. J.
Gow, Ian


Bellingham, Henry
Grant, Sir Anthony (CambsSW)


Bendall, Vivian
Greenway, Harry (Ealing N)


Biffen, Rt Hon John
Greenway, John (Ryedale)


Blackburn, Dr John G.
Griffiths, Peter (Portsmouth N)


Blaker, Rt Hon Sir Peter
Grist, Ian


Body, Sir Richard
Ground, Patrick


Bonsor, Sir Nicholas
Grylls, Michael


Boscawen, Hon Robert
Gummer, Rt Hon John Selwyn


Boswell, Tim
Hague, William


Bottomley, Peter
Hanley, Jeremy


Bottomley, Mrs Virginia
Hannam, John


Bowis, John
Hargreaves, A. (B'ham H'll Gr')


Boyson, Rt Hon Dr Sir Rhodes
Harris, David


Braine, Rt Hon Sir Bernard
Haselhurst, Alan


Brandon-Bravo, Martin
Hayes, Jerry


Brazier, Julian
Hayward, Robert


Bright, Graham
Heathcoat-Amory, David


Brown, Michael (Brigg &amp; Cl't's)
Heddle, John


Bruce, Ian (Dorset South)
Heseltine, Rt Hon Michael


Buck, Sir Antony
Hicks, Robert (Cornwall SE)


Budgen, Nicholas
Higgins, Rt Hon Terence L.


Burns, Simon
Hind, Kenneth


Butler, Chris
Hogg, Hon Douglas (Gr'th'm)


Butterfill, John
Howard, Michael


Campbell, Menzies (Fife NE)
Howarth, G. (Cannock &amp; B'wd)


Carlile, Alex (Mont'g)
Howe, Rt Hon Sir Geoffrey


Carlisle, Kenneth (Lincoln)
Howell, Rt Hon David (G'dford)


Carrington, Matthew
Hughes, Robert G. (Harrow W)


Carttiss, Michael
Hughes, Simon (Southwark)


Chapman, Sydney
Hunt, David (Wirral W)


Clark, Dr Michael (Rochford)
Hunter, Andrew


Clark, Sir W. (Croydon S)
Irvine, Michael


Clarke, Rt Hon K. (Rushcliffe)
Irving, Charles


Colvin, Michael
Jack, Michael


Coombs, Anthony (Wyre F'rest)
Jackson, Robert


Coombs, Simon (Swindon)
Janman, Tim


Cope, Rt Hon John
Jones, Gwilym (Cardiff N)


Couchman, James
Jones, Robert B (Herts W)


Cran, James
Kellett-Bowman, Dame Elaine


Currie, Mrs Edwina
Kennedy, Charles


Curry, David
Key, Robert


Davis, David (Boothferry)
Kilfedder, James


Dover, Den
King, Roger (B'ham N'thfield)


Durant, Tony
Kirkhope, Timothy


Dykes, Hugh
Kirkwood, Archy


Evans, David (Welwyn Hatf'd)
Knapman, Roger


Evennett, David
Knight, Greg (Derby North)


Fallon, Michael
Knox, David


Favell, Tony
Lamont, Rt Hon Norman


Fearn, Ronald
Latham, Michael


Field, Barry (Isle of Wight)
Lawson, Rt Hon Nigel





Leigh, Edward (Gainsbor'gh)
Redwood, John


Lester, Jim (Broxtowe)
Rhodes James, Robert


Lightbown, David
Riddick, Graham


Lilley, Peter
Ridsdale, Sir Julian


Livsey, Richard
Roberts, Wyn (Conwy)


Lloyd, Peter (Fareham)
Rost, Peter


Lyell, Sir Nicholas
Rowe, Andrew


McCrindle, Robert
Rumbold, Mrs Angela


Macfarlane, Sir Neil
Ryder, Richard


MacGregor, Rt Hon John
Sackville, Hon Tom


MacKay, Andrew (E Berkshire)
Sayeed, Jonathan


Maclean, David
Shaw, David (Dover)


McLoughlin, Patrick
Shaw, Sir Giles (Pudsey)


McNair-Wilson, Sir Michael
Shephard, Mrs G. (Norfolk SW)


McNair-Wilson, P. (New Forest)
Shepherd, Colin (Hereford)


Madel, David
Skeet, Sir Trevor


Major, Rt Hon John
Smith, Tim (Beaconsfield)


Malins, Humfrey
Speller, Tony


Mans, Keith
Spicer, Sir Jim (Dorset W)


Maples, John
Spicer, Michael (S Worcs)


Marlow, Tony
Squire, Robin


Marshall, John (Hendon S)
Steen, Anthony


Marshall, Michael (Arundel)
Stevens, Lewis


Martin, David (Portsmouth S)
Stewart, Andy (Sherwood)


Mates, Michael
Stradling Thomas, Sir John


Maude, Hon Francis
Summerson, Hugo


Mellor, David
Tapsell, Sir Peter


Michie, Mrs Ray (Arg'l &amp; Bute)
Taylor, Ian (Esher)


Miller, Sir Hal
Taylor, John M (Solihull)


Mills, Iain
Taylor, Matthew (Truro)


Mitchell, Andrew (Gedling)
Thurnham, Peter


Mitchell, Sir David
Townend, John (Bridlington)


Moate, Roger
Townsend, Cyril D. (B'heath)


Montgomery, Sir Fergus
Trippier, David


Moore, Rt Hon John
Trotter, Neville


Morrison, Sir Charles
Vaughan, Sir Gerard


Moss, Malcolm
Waddington, Rt Hon David


Moynihan, Hon Colin
Walker, Rt Hon P. (W'cester)


Neale, Gerrard
Wallace, James


Nelson, Anthony
Waller, Gary


Neubert, Michael
Wardle, Charles (Bexhill)


Nicholson, David (Taunton)
Wheeler, John


Onslow, Rt Hon Cranley
Whitney, Ray


Oppenheim, Phillip
Widdecombe, Ann


Page, Richard
Wolfson, Mark


Paice, James
Wood, Timothy


Patnick, Irvine
Woodcock, Mike


Patten, Chris (Bath)
Yeo, Tim


Patten, John (Oxford W)
Young, Sir George (Acton)


Pattie, Rt Hon Sir Geoffrey
Younger, Rt Hon George


Pawsey, James



Porter, David (Waveney)
Tellers for the Noes:


Powell, William (Corby)
Mr. Alan Howarth and


Price, Sir David
Mr. Stephen Dorrell.


Raison, Rt Hon Timothy

Question accordingly negatived.

Clause 44 ordered to stand part of the Bill.

Orders of the Day — Clause 138

POWER TO CALL FOR DOCUMENTS AND INFORMATION

Sir William Clark: I beg to move amendment No. 23, in page 103, line 45, at end add—
'(7A) In subsection (8B) after the words "under subsection (8A) above" there shall be added the words "or under subsection (3) above".'.
I shall not detain the Committee for long. The amendment is rather technical, but it impinges on the rights of taxpayers vis-a-vis the Inland Revenue. The Committee will recollect that, following the Keith report, the Inland Revenue has taken powers to require third parties to disclose documents and information about individual taxpayers. Not only does the Inland Revenue have that right, but it does not necessarily have to name the taxpayer. For example, the Inland Revenue could ask


an insurance company how many insurance policies covering inheritance tax had been taken out in the past six or 12 months. That can put a tremendous cost on third parties.
7.15 pm
The amendment endeavours to give the taxpayer the right of appeal because the Inland Revenue has to go before the commissioners to get permission to ask a third party for information about individual taxpayers, whether or not they name them. "Keith: Further Proposals", which came out last year, recommended that all third parties who were asked for information about a particular taxpayer, whether identified or not, should have the right of appeal, as some of the costs of complying with some of the Inland Revenue's requests to third parties could be pretty onerous. One could envisage that a third party might be asked by the Inland Revenue something about a taxpayer that happened 10 or 15 years ago. That would put an onerous and costly responsibility on that third party.
I hope that my right hon. Friend the Financial Secretary will not resist the amendment, as it gives the third party another appeal to which he should be entitled. In my view, the Inland Revenue should not have the right to ask a third party to produce information about a taxpayer if that third party does not have the right to say that the request is far too onerous without being allowed to go before the special commissioners. I am asking only that the third party should be able to go before the special commissioners.
I am sure that my right hon. Friend will say that the third party has the right not to comply with the Inland Revenue's request, and the non-compliance of that request then puts that third party into the penalty area. When that third party is subject to a penalty, he has the right to a hearing. It seems rather ridiculous that a third party, having been asked by the Inland Revenue to supply information, and having replied that the request is far too onerous and that it would be far to expensive to go back five or 10 years, then has to be in the penalty area before he can get a hearing in which he can say to the commissioners that the request is far too onerous.
I hope my right hon. Friend will consider the matter. It is a simple amendment, but it seeks to give more flexibility and certainly more rights to the third party who may have nothing whatsoever to do with the taxpayer being investigated.

Mr. Norman Lamont: My hon. Friend the Member for Croydon, South (Sir W. Clark) has asked an extremely important question. The provisions that we are discussing relate not to unnamed but to named taxpayers. I make that clear, because I think that my hon. Friend bracketed the two together.
For many years, the Revenue has been allowed to require a third party to provide access to documents in his possession relating to the tax affairs of a named person. This power is not altered by the Bill, other than to remove a small loophole that allows some third parties, in certain circumstances, to be used as safe havens if taxpayers are intent on frustrating the Revenue.
That power is subject to stringent controls. The inspector can require access only to documents that, in the inspector's reasonable opinion, contain information relevant to a tax liability of the person whose affairs are under inquiry. The inspector must first ask the third party

to provide access to the documents voluntarily, and give him a reasonable time to comply. Only if this fails can the inspector proceed further. The inspector must next apply to an appeal commissioner, who is independent of the Revenue, for permission to issue a formal notice. The commissioner is required to be satisfied that in all the circumstances the inspector is justified in requiring access to the documents in question before he can give his consent. Only if the commissioner is satisfied can the inspector give a formal notice to the third party requiring him to provide access to the documents in question.
The existing procedures provide protection against any unnecessary or excessive invasion of privacy. In particular, they provide protection against unreasonable burdens on third parties.
The commissioner is required to be satisfied that in all circumstances the inspector is justified in proceeding with his request. This means that he must inquire into whether the request is reasonable and must take account of all representations which have been made. In particular, the informal request by the Revenue to the third party provides the third party with an opportunity to raise any objections that he has to the notice, including objections on the ground that it would be burdensome, which must be reported to the commissioner by the inspector and taken into account.
The Keith committee agreed that this information power should continue to be subject to oversight by the independent appeal commissioners, but Keith thought that the public would be better safeguarded if the present procedures for an informal request and review by the commissioners, in every case before a notice was given, were replaced by a right of appeal to the commissioners after the notice had been given. Most of the respondents in the consultations on the recommendations of the Keith committee disagreed. The overwhelming majority of respondents, including all the bodies representing businesses and the accountancy and legal professions, believed that the existing provisions—with oversight by the commissioners before the event—would provide better safeguards for the taxpayer than oversight after the event through a separate right of appeal.
The Inland Revenue proposed, in the consultative paper published last July, to leave the procedures unchanged. The majority of respondents to that consultative paper agreed. A few suggested that there should be both oversight before the event and oversight after the event with a new right of appeal. The majority of respondents recognised that this was not necessary, and would put an unreasonable burden on the Revenue and the commissioners. The present procedures provide full safeguards for the taxpayer and it is not necessary to introduce further complications.
My hon. Friend the Member for Croydon, South suggests that a limited right of appeal should be introduced to allow third parties to appeal on the ground that it would be onerous to comply with the notice. When we introduced a new power, in last year's Finance Bill, allowing the Revenue to require access to documents about unnamed taxpayers, we included such a right of appeal. However, there is a distinction in the circumstances. A notice requiring information relating to an unnamed taxpayer can be in respect of a possibly large class of taxpayers. This means that the Revenue and the appeal commissioners may inadvertently require access to documents relating to a much larger class of taxpayers


than was intended. For this reason, we provided a limited right of appeal on the ground that it would be onerous to comply with the notice. The circumstances are different for a notice in respect of a single, named taxpayer.
I am reluctant to accept the amendment. Although the third party does not have a direct right of appeal to the commissioners, he has full and proper right of appeal under the present procedures. First, the third party can appeal directly to the courts by way of judicial review. The Revenue is entitled to require access to documents that may reasonably be required for the purposes of determining the tax liabilities of the named taxpayer. A notice requiring access to more documents than could reasonably be required would be struck out by the courts, as was established in 1974 in Clinch v. Commissioners of Inland Revenue.
Secondly, the third party has an indirect right of appeal to the appeal commissioners. If the third party considers that the notice is unreasonable, he can object to the Revenue, explaining his reasons. The Revenue can accept his reasons and withdraw or modify the notice, or reject them and insist that he complies with the notice. If he refuses to do so, the Revenue can let the matter drop or institute penalty proceedings before the appeal commissioners. The proceedings give the third party an opportunity to appeal against the notice to the appeal commissioners by explaining his reasons for refusing to comply. If the taxpayer's appeal is upheld, there will obviously be no penalty.
I am not persuaded by the amendment. The subject was discussed in consultations on the recommendations of the Keith committee. It was widely recognised that one had a choice of oversight before or after the event, but not both. Although my hon. Friend made some comments about penalty proceedings, there is a longstop by which the taxpayer can gain access to the appeal commissioners.
My hon. Friend was as persuasive as he always is, but I cannot accept the amendment.

Mr. William Clark: My hon. Friend did not say that the third party is not represented before the commissioners. I cannot understand my right hon. Friend saying that the third party has access to the courts. Of course he has, but that is terribly expensive. If I am a third party and the Revenue is inquiring into the tax affairs of someone I knew years ago, I cannot understand why I should be put to the burdensome cost of complying. Who will pay the legal fees? They will fall on me. It would be simpler if my right hon. Friend were to reconsider the issue. It is simple to allow the third party a right of immediate appeal to the commissioners, whereby everyone is protected. It is convoluted to say that there is a longstop and that the third party can argue his case in the penalty proceedings. I do not think that my right hon. Friend can justify that.
Why can the inspector of taxes request a third party's documents from the commissioners without the third party or the named taxpayer being present?

Mr. Norman Lamont: The recommendations are based on the recommendations of the committee under Lord Keith. They were the subject of widespread consultation and there was a degree of consensus for them. However,

my hon. Friend is clearly unhappy. I will reflect further on what he has said, but I hope that he will not take that as a commitment to bring a proposal forward on Report.

Sir William Clark: I accept that, and I am most grateful to my right hon. Friend. He said that there had been considerable consultation and that the consensus was that this provision was perfectly all right under the Keith proposals. However, the Confederation of British Industry, which represents a tremendous number of the business interest in this country, is not happy. As my right hon. Friend has promised that he will consider my proposal—I realise he will do so without commitment—I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Nicholas Brown: On behalf of the Opposition Treasury Front Bench, I welcome you, Mr. Mc William, to the Chair of the Committee on the Finance Bill. It is a pleasure to see one of my colleagues from the northern region in the Chair. The uncharitable might say that if I have to go through the Finance Bill, it is nice to know that I am taking someone with me—at least part of the way.
This debate is an opportunity for us to discuss on the Floor of the House some of the principal issues involved in a range of clauses which implement the recommendations of the Keith committee. Clause 138 deals with the Inland Revenue's right to information, and it is therefore an appropriate introductory vehicle to the more detailed examination that will take place in Committee upstairs. I must say at the outset that we welcome the clause and have no intention of voting against it. However, I regret that it has taken the Government from 1984 until now to introduce the important recommendations of the Keith committee into legislation.
The Keith committee was set up in 1980 and responses to its proposals were made in 1984 and 1985. It is significant that it has taken the Government so long to evaluate the Keith proposals and the responses. The time they have taken gives an insight into, among other points, the energy of the tax avoidance lobby.
Several issues arise directly out of clause 138. I want to highlight two of them, the first of which is the Revenue's right of access to accountants' working papers. The accountancy profession itself has mixed views about the proposed treatment under this clause. If Accountancy Age, is to be believed, and I am sure it is, some accountants have seen the clause as going some way to meet the reservations that the profession has expressed, whereas others in the profession are still concerned that the Revenue's powers may be too wide and that that could lead to an infringement of taxpayers' legitimate rights.
Many who have commented on this aspect of the clause have made the point that the proposal puts the accountancy profession on the same footing as solicitors —in other words, that the relationship that accountants have with their clients is privileged. I am not sure that the analogy with solicitors is helpful in this context or that it is the right way in which to proceed. A solicitor has a duty to represent his client's interests to the best of his professional ability and there can be no ambiguity about which side a solicitor is on. The position for the


accountancy profession is less clear-cut. There has been discussion in the profession about the balance that has to be struck between an accountant's duty to the ethics of the profession and his natural desire to maximise the money accruing to his client—who is, after all, paying for the accountant's services—and those factors may sit uneasily alongside each other. Such issues are not always clear-cut, just as the dividing line between tax avoidance and tax evasion is not always plain to see.

Mr. Beith: I am not sure whether the hon. Gentleman intended to suggest that the dilemma between the ethics of the profession and the interest of the client does not arise in the case of solicitors. The hon. Gentleman seemed to suggest that there was no analogy between accountants and solicitors, but solicitors face the same problem. A solicitor must ensure that in pursuing the interests of his client, he does not offend the ethics of his profession or the law itself.

Mr. Brown: If the hon. Gentleman will allow me to develop the argument a little further, he will see the distinction I am trying to make. The intervention was premature.
The working papers of accountants are professionally prepared documents which show clearly how a particular decision or conclusion has been reached. Such papers might also show what other conclusions were under consideration, but were rejected. It is not hard to understand why the Revenue would like access to those documents or why the accountancy profession is uneasy about such Revenue access. To put it no more strongly, it would be quite understandable for accountants to think twice about what they would commit to paper if they knew that one day their views would be exposed to scrutiny by their opposite number in the Revenue, perhaps in an adversarial setting.
The decision that is made on clause 138 has an important impact on the debate about the balance between an accountant's duty towards the profession and professional ethics, and the accountant's much narrower duty towards his client. The clause places the emphasis firmly on the accountant's role as a professional adviser, who is clearly on the side of the person employing him. If that is the intention, the analogy with the legal profession to which l referred earlier begins to look better. However, there are implications for the future of the accountancy profession and, in particular, implications for its self-regulatory status and its relationship with the Revenue.
The other important issue in the clause is the Revenue's right to information—a right that can be exercised only if the Revenue has sufficient staffing to exercise it in all the cases in which it is necessary. The clear result of inadequate staffing in the Inland Revenue is that tax avoidance is encouraged because tax avoiders know that they have a better chance of getting away with it.
Tax inspectors are probably the most cost-effective employees of the Government. In 1987–88, the uncovering of tax frauds and undeclared tax raised just over £2 billion for the Exchequer, which was a 20 per cent. increase on the 1986–87 figure. The average yield brought in by a grade 7 inspector undertaking accounts work in one of the specialist tax offices dealing with large commercial firms was, on average, almost £1 million per head in 1987–88. It

is perfectly clear that growth in that area would be cost-effective for the Government, and for the British taxpayer.
The other side of the coin is that it is also perfectly clear that failure to staff the Inland Revenue adequately is costing the country a great deal of money. In a parliamentary answer given to me last Monday, the Financial Secretary himself told me—[Interruption.] The Financial Secretary himself told me that the amount of tax written off as impossible to recover has risen fivefold, from £60 million in 1979 to just over £333 million in 1987. The number of non-taxpayers involved increased over the same period from 57,191 to 119,520 by 1987.
The Select Committee on the Treasury and Civil Service has recently considered manpower losses in the Inland Revenue and has expressed its concern at the loss of tax inspectors from the Inland Revenue. In 1987–88, 260 left, and 170 left the year before that. According to the Committee, resignation rates have jumped significantly, especially in London and the south-east. Some of the blame for that has been put on the rates of pay, which have not kept pace with the remuneration offered in the private sector. If there are particular difficulties in London and the south-east, surely it is time for the Inland Revenue to look again at the relocation of some of its activities to the regions.
It is also time for the Government to look again at the rates of pay for Revenue employees. It is no good putting more power into the hands of the Revenue if it does not have sufficient staff to allow it to exercise that power. Sadly, it is said that careers officers at universities ace advising graduates to join the Inland Revenue for training and then move across to the private sector for the money. The Treasury and Civil Service Committee was told that it costs £50,000 or more to train a skilled tax inspector. I greatly resent the fact that the British taxpayer is paying 1.0 train tax inspectors only to watch them move across to the private sector to use that training for the opposite purpose to that for which it was intended. It cannot be in the interests of the British taxpayer to train experts in tax avoidance if they then go to work for the tax avoiders rather than the tax collectors.
The issue of manpower losses is serious—the more so when the initial understaffing of Revenue divisions is taken into account. In 1984 the Government said that they proposed to set up a new division to clamp down on schedule D evasions. The unit was to have 780 staff in post by April 1988. By mid-1988 there were only 588 staff in post.
It is important to set the Government's attitude to tax evasion in its wider context—their attitude to other types of evasion. The Public Accounts Committee has an important role to play in that regard. The PAC has alerted the House to similar problems in other Departments in a number of its reports. Last November, we debated staff levels—which we have just discussed in relation to the Inland Revenue—at Customs and Excise, which was dealt with in the Committee's 33rd report. Surprisingly—perhaps not surprisingly—that report made similar observations to those that I have made about the Revenue. Again, emphasis was placed on the difficulty of recruiting staff in London and the south-east. The House was told that one serious consequence of understaffing seemed to be that Customs and Excise found it easier to pursue smaller


and more readily discerned evasion than tackling the larger issues. Our fear must be that exactly the same applies to the Inland Revenue.
In that context it is instructive to compare the lack of resources put into pursuing income tax evasion with the strenuous efforts that the Government are making to combat benefit fraud in England, Wales and Scotland—although not, according to the Public Accounts Committee, in Northern Ireland. There has been a steady increase in the number of fraud investigators employed by the Department of Employment. Since 1984–85, when the figure stood at 450, it has increased to 820 in 1988–89 with an attendant increase in support staff.
The figures for the Department of Social Security show a similar increase since 1979–80. In that year 2,311 people in full-time equivalent posts were directly employed in fraud-related work. The figure has grown to 2,940 in 1988–89. The Department of Employment can also report a substantial increase in the number of presecutions over the same period—2,250 in 1984–85, rising substantially to 4,045 in 1988–89. That substantial emphasis on combating state benefit fraud sits unhappily alongside the Government's failure adequately to staff the Inland Revenue or Customs and Excise which could both return far greater sums to the Exchequer if resources were properly applied.
It is with those reservations that the Labour party approaches the clause, although we do not oppose any measure that will tighten up the current regulations and make tax evasion more difficult. We only wish that the Government shared our enthusiasm for such measures.

Mr. Tony Worthington: I shall elaborate on some of the points made by my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown). It was interesting to hear, during our previous debate on amendment No. 23, the considerable concern expressed by the hon. Member for Croydon, South (Sir W. Clark) about the rights of accountants and their clients and the need to ensure that they were treated fairly and dealt with by approved methods. If only the same concern were shown for those who are being investigated for social security fraud. Let us be blunt about this. We are talking about stealing, and I believe that stealing should be treated in the same way whether it is stealing from a gas meter, from the Department of Social Security or from the Inland Revenue, yet we have very different ways of investigating and treating those different forms of stealing.
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Let me give the House an example from my constituency. A number of my constituents—who were very vulnerable because they were recovering alcoholics or drug abusers or were mentally ill—were living in a hostel and it was recommended that as part of their treatment they should go to work in another hostel and help the addicts there. They were given expenses. Someone at the Department of Social Security deemed that they were workers and receiving an income. That income was immediately confiscated—in the form of deductions from their benefits. Some 13 months later their case had still not been heard. During the investigation they were treated in what they described as in a thuggish way by the fraud squad, who made all kinds of threats.
My constituents approached me and I wrote to the Department of Social Security asking it to investigate the case. Several months later, I received a letter from the Department saying that the allegations had been investigated and found to be groundless. The investigation did not even involve a representative of the Department of Social Security interviewing my constituents and asking them about the basis of their complaints. That was the quality of the investigation.
In contrast, it has taken the Government nine years to implement this tiny part of the Keith committee report on fraud and the Inland Revenue. As my hon. Friend the Member for Newcastle upon Tyne, East pointed out, the Government seem indifferent to the fact that in 1987–88 we were 200 tax inspectors short, and the Government have not said how they propose to fill those vacancies. It is the economics of Passchendaele. We are training people at a cost of £50,000 to perform a public service but that money is wasted because they go to work elsewhere.

Mr. Eric Illsley: There is a knock-on effect.

Mr. Worthington: As my hon. Friend says, there is a considerable knock-on effect. Nine years ago there was a 1·8 per cent. wastage rate among Inland Revenue inspectors in London, and in 1987–88 that figure had risen to 11·9 per cent.
According to the Select Committee on the Treasury and Civil Service, we could reduce income tax by 2p in the pound simply by recruiting enough tax inspectors. Perhaps the House could unite on that. The Inland Revenue admitted losing £5 billion in uncollected taxes and that 16 per cent. of tax inspectors resign each year. Surely it is not beyond the Government's wit to see what a splendid money-making venture these could be. All we need to do is to find a way of recruiting tax inspectors, and everybody could pay 2p in the pound less in income tax each year.
Why does that proposal not come forward from the Government? Why is there an absence of innovation and enterprise? Why can Lord Young's energies not be set free in this matter? We could have a wondrous advertising campaign to find tax inspectors. It would not matter what we paid them; it would be extremely cost-effective. I suspect that energy has not been put into the matter because too many Conservative Members think that too many stones might be overturned.
Nevertheless, hon. Members should ask the Minister for an explanation of how the Inland Revenue will be adequately staffed. The matter cannot be left to the Civil Service Commission. It could not fill a pint glass, never mind rapidly fill a job vacancy. We need to do something more innovative than leave it to the Civil Service Commission to find an adequate number of tax inspectors. What will be done to fill the vacancies? It is clear that the country is losing a great deal of money by the failure to act energetically.

Mr. Beith: The appearance on the statute book of a chapter of Revenue powers might give cause for some concern, but deliberations of the Keith committee and the wide consultations that surrounded it have led to a set of provisions that have met with general satisfaction because of the combination of new provisions and new safeguards and the analogous way in which they have been related to the powers of other agencies. It seems a strange fact of life that, as Members of Parliament, we tend to come into


contact with tax cases, when the powers of the Revenue have been inadequate properly to discharge a task and someone has got away.
That applies to other matters. One has the vision of the Barlow Clowes affair and documents being shredded in an upstairs room—incidentally, just across the road from where I was born—while the Department investigators were coming in the front door. It conjures up pictures of Miss Fawn Hall going out of the Pentagon with documents in her boots, as I believe she confessed to having done. Powers have either been insufficient or insensitively used. The taxpayer who may have made an error, rather than seek to defraud the nation, suddenly finds the apparatus descending on him with a degree of thuggishness, as the hon. Member for Newcastle upon Tyne, East (Mr. Brown) described in relation to a benefit fraud case. The powers seem to be necessary and accompanied by appropriate safeguards.
I served on the Treasury Sub-Committee of the Treasury and Civil Service Select Committee that looked into the staffing problem at the Inland Revenue, and I listened to the arguments that were put forward. Like all members of the Sub-Committee, I was struck not only by the vast amount of money that is being lost by the lack of staffing but by the need for more radical thinking about how to deal with the problem. Several points came to light. One was that, to be successful, it would be necessary for the Government to devote a lot more attention to making it possible to recruit and retain women tax inspectors. That argues for part-time work, opportunities for career interruption, child-care facilities and a range of matters that would make the job one in which women could be retained. The private sector will certainly look for ways to make tax consultancy a suitable option for trained female tax inspectors.
There seems to be a lack of flexibility in the payment system, as I remember from my questioning of an Inland Revenue official. Any private concern faced with the drift away of such large numbers of people would move quickly to provide appropriate incentives and remuneration when required. I am thinking particularly of the south-east of England. I agree with the hon. Member for Newcastle upon Tyne, East that substantial relocation is desirable. Some work has been done, but more could be done. When there is an immediate crisis and staff are moving away quickly, the payment system in the public service must have the flexibility to respond as the private sector would respond. We will waste our time by adding powers to the statute book if we do not ensure that the Revenue has enough staff to carry them out.

Mr. Norman Lamont: I am grateful to the hon. Member for Berwick-upon-Tweed (Mr. Beith) for his comments about the background to the Keith committee's conclusions and their implementation. When a series of clauses such as this are put in the Finance Bill it is not always appreciated to what extent they modernise and build safeguards into the powers that already exist. The hon. Gentleman summed it up fairly and accurately. I do not think that the proposals have caused alarm. They have been widely supported by professional bodies. I am glad that the hon. Gentleman confirmed that view—I like to hear that other people have that view. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) said the same thing.
The only point with which I quarrel slightly is about the delay in introducing the recommendations. The hon. Member for Clydebank and Milngavie (Mr. Worthington) talked about these "tiny" provisions. They represent almost the last instalment of the Keith committee recommendations. We have been implementing them year by year. We have done so gradually for precisely the reason that the hon. Member for Berwick-upon-Tweed highlighted: they are sensitive matters. The Revenue has been right to move on the basis of consultation and consensus.
The hon. Member for Newcastle-upon-Tyne, East talked about legal and accountancy privilege. It is a controversial issue—one that I hesitated at the time to stray into in any way. There is no change in legal privilege. There is a change in the focus on the privilege of accountants. I was slightly surprised at what the hon. Gentleman said about accountants' concern. I do not think that that is true of representative bodies. They saw the clauses in the consultation exercise and did not express concern.
The Bill introduces a new and better-focused protection for confidentiality. The Revenue will not be able to require accountants to disclose their audit papers or the tax advice that they give their clients. That would broadly give the same protection for confidentiality to the taxpayer's accountant as to his lawyer. The Keith committee recommended that privilege, subject to the override, should be extended to tax advice given by accountants. As we decided against the override for legal professional privilege, it was not possible to extend legal professional privilege subject to the override to professional accountants as Keith recommended. The Government's approach is to provide a separate form of protection for accountants that is distinct from but similar to that given to lawyers. The present protection for accountants' papers needs a balance to ensure that the Revenue can see the papers that it needs to see, while properly protecting the confidentiality of the professional relationship.
In some instances, the protection is too broad. In many small businesses, accountants' working papers include most of the books of the business. In such cases it would be impossible for the Revenue to check and understand the accounts of a business if it were refused access to the accountant's working papers. On the other hand, the present protection for accountant working papers will fail to cover some of the papers that Keith thought should remain confidential. I believe that there is a degree of consensus for the proposals.
The hon. Members for Clydebank and Milngavie and for Berwick-upon-Tweed talked about the loss of tax inspectors in the Revenue. Of course I take the level of staff losses, especially in London and the south-east, extremely seriously. Steps are being taken to stem the losses. Some of the ideas mentioned by the hon. Member for Berwick-upon-Tweed are precisely ones that are being implemented in the Revenue. The Revenue is taking a number of steps, and the signs are that they are beginning to pay off. We are having special increases in pay targeted to groups with particular problems of recruitment and retention. Relocation was one of the points mentioned by the hon. Member for Berwick-upon-Tweed. We have a continuing and large programme to move work out of London to areas where costs are less. The Revenue is well in the van there.
We have also done a lot in terms of moving staff into the areas where they can concentrate resources on those areas that have the highest yield in relation to staff costs. The number of inspectors investigating accounts has increased 10 per cent. in the last three years. We have increased the resources and effectiveness in areas of compliance work by clerical staff below inspector level. The number of higher grade tax officers dealing with the black economy has nearly doubled in three years and the annual yield per officer on PAYE audit has doubled, coverage has trebled and the yield has increased fivefold. Yield from Inland Revenue counter-avoidance and evasion activities is worth £2 billion a year, which is equivalent to saving £80 for every taxpayer or a reduction of 1½p in the basic rate, which is not short of what the hon. Member for Clydebank and Milngarvie spoke about.
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Turning to what we are meant to be talking about, the Keith committee and the reforms in detail, I should emphasise that they do not give sweeping new powers to the Revenue nor do they place new burdens on the taxpayer. They generally update and simplify the procedures while setting out clearly in law the limits on the power of the Revenue in establishing a full system of safeguards for the public.
Clause 138 is the first group of about 30 clauses whose purpose relates to the reform of the information of the Revenue. As I have said several times, they have been the subject of extensive consultation. Keith found that the powers of the revenue were neither excessive nor misused, but were out of date and needed revision. We need a balance between the interests of the tax gathering agency and its duty to the wider body of taxpayers. After Keith published its report in 1983, we invited parties to write in with comments. The revised proposals were well received. The consultative paper received a wide circulation. More than 800 copies were issued and there were many articles in the accountancy press on the proposals. There was a strong response from bodies representing the professions, businesses, firms of accountants and many individuals.
The vast majority of the proposals enjoyed the support of respondents. For example, the British Bankers Association
welcome the pragmatic response displayed by the Revenue.
The Institute of Chartered Accountants of Scotland said —it is not often that we hear all these compliments to the Revenue—
We wish to take this opportunity of commending the Inland Revenue. The consultation process which the Revenue has adopted for the introduction of the Keith Committee proposals has proved helpful. It has, we believe, been useful both to the Revenue and to the taxpayer.
The message has come through loud and clear that the right balance is rather difficult to reach. The solution of pleasing all of the people all of the time has perhaps not been reached, but I do not believe that there is any real reason for alarm or fierce criticism of the proposals. I am grateful to Opposition Members for what they have said about them.
Question put and agreed to.

Orders of the Day — Clause 1

RATES

Dr. John Marek: I beg to move amendment No. I, in page 2, line 2, leave out £0·0272' and insert '£0·0292'.

The Temporary Chairman (Mr. John McWilliam): With this it will be convenient to take the following amendments: No. 11, in page 2, line 2, leave out £0·0272' and insert 10.0383'.
No. 2, in page 2, line 2, at end insert—
'(2A) In section 13A of the Act (rebate on unleaded petrol for "£0·0272" there shall be substituted "£0·0292".'.
No. 12, page 2, line 2, at end insert—
'(2A) In section 13A of that Act (rebate on unleaded petrol) for "£0·0272" there shall be substituted "£0·0383".'.
No. 3, in page 2, line 8, leave out subsection (4) and insert—
`(4) Subsections (1), (2), (3) and (4) shall be deemed to have come into force at 6 p.m. on 14th March 1989. Subsection (2A) shall come into force at 9 a.m. on 10th May 1989.'.

Dr. Marek: I must point out that with amendment No. 1 we can discuss several other amendments that have been put down by Democrat Members who are not here at present, but who I hope will return quickly.
Hon. Members will notice that there is a bidding auction as to how much we should increase the rebate on unleaded fuel. Again, there may be a Division in the House on how far we should go in order to introduce unleaded petrol as quickly as possible. I do not believe, however, that there is any dispute about the desirability of doing so. The Opposition have reservations about how far the Government have gone. Perhaps we have even more reservations about the Government not doing anything about it until recently. To be fair, they have taken some measures, but we believe that they should have taken more.
The amendment is a moderate one, because we are a moderate party. We intend to continue along that path, but I will be interested to hear what the Minister says about the Government's programme and where it could be improved.
There is no doubt that lead poisons the brain. Lead additives in petrol find their way into all our bodies, and retard the development of children. Nearly all children are now affected to some extent by lead poisoning. Some recent research even suggests that lead is the primary risk factor for impairing the development of children.
Of course, large particles of lead emitted by cars will fall out by the roadside, and small ones will permeate the atmosphere. That is not a local problem. Lead gets into the air and it can be blown from here to nearly every country within the European Community. All of us suffer damage because we breathe it. We can do no other than breathe the atmosphere. Of course, when lead settles on plants and in the environment, we eat it through our food.
Unborn children are especially at risk because they are still developing in their mother's womb. It is interesting that the fatal dose for a woman is a blood level of 40 mg per 100 ml and the fatal dose for a man is 100 mg per 100 ml. Recent research found that in London schoolchildren suffered a seven point handicap in their IQ when their blood level was more than 13 mg per 100 ml. We must be clear that we do not need large amounts of lead in our blood. Certainly children do not need to have large


amounts of lead in their blood to suffer in their development and to suffer permanent damage for the rest of their lives.
I should like to examine what the Government have done and how they are doing it compared with the action in other countries.

Mr. Keith Mans: Will the hon. Gentleman point out the research that shows that higher levels of lead in the atmosphere lead to higher levels of lead in the blood of adults rather than children? I am not aware of any evidence to the contrary.

Dr. Marek: I was not comparing adults with children. I was saying that both were involved. I am relying on the words of Professor Smith, who is professor of organic chemistry in the chemistry department at Reading university. The hon. Gentleman can obtain all the evidence that he needs from that source.

Mr. Mans: I understand that that research was limited to children, but the most substantive research on adults concentrated on taxi drivers in London, who were reckoned to inhale a considerable amount of lead. Surprisingly, however, there was no evidence that the amount of lead in their bloodstream was greater than that of the control group.

Dr Marek: The hon. Gentleman is talking about one set of experiments and all I can say is that that result is unexpected and, therefore, it is likely to be wrong. We need a lot more research into adults and —

Mr. Matthew Taylor: rose—

Dr. Marek: I shall give way to the hon. Gentleman if he will allow me to finish my reply to the hon. Member for Wyre (Mr. Mans).
Many more experiments are required to establish exactly what is happening. Although the metabolism of children is different from that of adults, it is not all that different and there could be a change in the relative intake of lead. However, what is certain is that most informed opinion would say that adults living in a lead environment would experience an increase in lead poisoning.

Mr. Matthew Taylor: The hon. Gentleman might be interested to know that in America between 1976 and 1980 there were substantial decreases in the lead emitted into the atmosphere through petrol and a substantial decrease—of 36 per cent.—in the amount of lead in average blood samples there. Therefore, there seems to be some evidence that runs contrary to that of the hon. Member for Wyre (Mr. Mans).

Dr. Marek: I am grateful to the hon. Gentleman for giving that evidence. I had hoped that we would have a discussion in which all hon. Members would be in general agreement about the problem so that we could simply seek a solution. Indeed, I think that we are probably all agreed that there is a problem that must be addressed and that the central question is whether the Government are approaching it in the right way and whether they are doing enough to get rid of the serious problem that we all agree exists, at least for children, and, some of us would add, for adults also.
It is a European if not a global problem because air circulates and I am fairly sure that lead emitted in this country would probably find its way right across Russia.
One piece of research from a Surrey university research group looking into the hazards of lead pollution on the M25 and M 1 has recently caught my eye. The group found that the entire length of the M 1 was littered with lead sediment—perhaps that is to be expected after 20 years. It also reported a huge rise at many of the intersections and found that even after only two years conditions on the Surrey section of the M25 were generally worse than those on the M1.
The group also found high concentrations of lead in Parliament square. I hope that none of us eats anything grown in Parliament square—I do not think that we do —but when we leave this building we go out into an atmosphere with possibly one of the highest concentrations of lead in the country. I think of that every time I leave the House and try to cross at the traffic lights at Bridge street and Parliament street. Many vehicles in that enormous roar of traffic are still emitting lead that we breathe in before the huge particles settle on the ground.
Let us compare what the Government have been doing with what has been happening in other European countries. In the Netherlands, unleaded petrol is available in every garage. In Denmark, the coverage figure is 90 per cent. and in West Germany it is 75 per cent. In March 1988, 700 garages in Britain sold unleaded petrol. By the end of January this year, that figure had increased to 4,300 that is, if my sources of information are correct. That represents about 22 per cent. of garages. The latest figure is that 38 per cent. of garages sell unleaded petrol. I am sure that the proportion here is higher than in countries such as Spain or Greece, although I do not have the figures for the number of garages selling unleaded petrol in those countries. Nevertheless, the figure for this country is well below those for countries such as the Netherlands, Denmark and West Germany.
The first question I want to ask the Minister is whether he confidently expects—

Mr. Quentin Davies: rose—

Dr. Marek: I shall certainly give way to the hon. Gentleman in a minute. Perhaps he will just let me ask my question.
Does the Minister confidently expect that the good rates of increase that we have seen in the past few months will be kept up, so that, standing at the Dispatch Box in a year's time, I shall be able to give credit to the Government because instead of 38 per cent. of our garages selling unleaded petrol, the proportion will be over 60 per cent. or even higher?

Mr. Davies: The hon. Gentleman is known as a distinguished mathematician so I wonder whether he can calculate for the benefit of the House the rate of increase from January last year until now in the number of garages selling unleaded petrol that the figures that he has just quoted to the Committee represent. Does he agree that it would be churlish not to give the Government a great deal of credit for the remarkable rate of increase, which I know he will be able to calculate with greater accuracy and greater speed than myself?

Dr. Marek: I do not want to depart from the spirit of unanimity in the House about the fact that everybody wants to do something about this problem. Nevertheless, the hon. Gentleman must realise that rates of increases in


themselves do not show exactly what is happening in any particular situation. At Treasury Question Time last Thursday, the Chancellor of the Exchequer said that the rate of increase in inflation in West Germany was 300 per cent. when it increased, if my memory serves me correctly, from 0·5 per cent. to 1·5 per cent. That is a high figure, and the Chancellor was prepared to use it, but most people would still say that inflation in West Germany is a lot less, at 1·5 per cent., than inflation in this country, where it is 7·9 per cent. The hon. Gentleman should not try to mislead me by appealing to a selected statistic and saying that, if it sounds good, everything in the country must be rosy.
I am glad that the Government have done something and I am pleased that they have done what they did in connection with the rebate on unleaded petrol in the Budget. My reservation is that they should have done a little more and I shall suggest later what they could have done.

Mr. David Martin: Perhaps the hon. Gentleman would like to know another statistic, which is that, instead of unleaded petrol representing 1 per cent. of all petrol sales as it did a year ago, 6 per cent. of petrol sales are now unleaded. That is a substantial increase and I hope that credit will be given for that also.

Dr. Marek: That may be right, but the hon. Gentleman's party's research department has been a little lackadaisical in not giving him the right figures. I thought that the Under-Secretary of State for the Environment announced a figure of 14 per cent. a few days ago—[Interruption.] Well, like us all, the hon. Gentleman must first try to get his facts right and secondly, he must give me time to develop my case because I intend to come to the question of total petrol sales in this country.
At the moment, I am considering the number of garages or the percentage of garages in this country that sell unleaded petrol. The fact is that the proportion is about 38 per cent. at present, whereas in West Germany it is 75 per cent. In Denmark it is 90 per cent., and in the Netherlands every garage must sell unleaded petrol. Therefore, I want to ask the Economy Secretary whether he can do more to increase the number of garages that are selling unleaded petrol in this country. Why will he not ban or say that he intends to ban the sale of two-star and three-star petrol in a year or two so that those pumps can then be used to sell unleaded petrol?
I turn now to what the hon. Member for Portsmouth, South (Mr. Martin) said about the percentage of unleaded petrol that is sold. I have a few figures. In the Netherlands and Switzerland, over one third of the petrol sold is unleaded, in Denmark and Sweden it is one third and in West Germany about half is lead-free. In Britain, over a year ago about 0·1 per cent. of petrol sold was unleaded. In February of this year, 5 per cent. of petrol sold was unleaded and, if I am right, the Parliamentary Under-Secretary of State for the Environment announced on 1 May that 14 per cent. of petrol was unleaded.
That is a creditable increase, but will the Government confirm that it will continue and that, if we have the same debate in a year's time, that 14 per cent. will have risen to more than 33 per cent.? If that were so, I would certainly compliment and congratulate the Government. However, 14 per cent. is low compared to the figures in other

developed, responsible and evironmentally conscious countries such as the Netherlands, Denmark, West Germany, Switzerland and Sweden.
Some countries do have lower figures than the United Kingdom. The sale of unleaded petrol in Spain is still only about 1 per cent. of its total petrol sales, and in Luxembourg, for other reasons, the figure is about 4 per cent. We should be leaders in Europe, but, as in so many other ways, we never are; we are always trying to catch up from the back.
I repeat my question to the Economic Secretary: is he confident that the 14 per cent. will have risen to more than 30 per cent. in a year's time? If not, the Government must take on board extra measures to try to increase the sale of unleaded petrol. Will all new cars be able to run on lead-free petrol after October 1989? Have there been any hitches in that process? Is the Government's relationship with car manufacturers and companies good?
I have already referred to prohibiting the sale of two-star and three-star petrol. The Government could take some action because such petrol is necessary in only a few restrictive circumstances. The Government could not only prohibit the use of two-star and three-star petrol and say that those pumps should sell unleaded petrol, but could go further and say that every garage should sell unleaded petrol. I wonder how much hardship to garages would result from that? Perhaps it would mean some increases in their costs, but the Government should consider that matter now, so that the industry has plenty of time in which to adjust. One or two garages may not be able to sell unleaded petrol simply because they do not have room, but that could be overcome if the Government had a mind to do it.
The Government could substantially reduce the tax on unleaded petrol for a temporary period, perhaps two or three years. That would reduce the price far more than the amendment tabled by the Opposition, and perhaps even more than the amendment tabled by the Democrats.
The Government should make it abundantly clear to car owners that they can, by spending £20, have their car adjusted to run on unleaded petrol. At the moment, there is a difference of perhaps 10p per gallon. The sales and availability of unleaded petrol are rising, but if they start flattening off, a big increase in the rebate for unleaded petrol should be seriously considered as a temporary measure to help people to adjust their cars for unleaded petrol. Two out of three cars can, with a small adjustment, run on unleaded petrol.
Exhortation should play a part in this process, as should appealing to the environmental spirit in the country. We should exhort people to think about the welfare of others. That is something which the Government are not particularly good at doing. We must make it worth while for people to run their cars on unleaded petrol. There would be nothing wrong in increasing the price of four-star petrol, because once enough motorists use enough unleaded petrol, the tax on leaded petrol can be increased.

Mr. Mans: Is that the Labour Party's policy?

Dr. Marek: No, it is a suggestion from the Opposition to the Government.

Mr. Michael Brown: I am seriously worried about the hon. Gentleman's suggestion. Many of my constituents do not frequently change their


cars and many of them may well vote for the Labour party. People who have fairly old cars often cannot afford to change them very often and it would be an unfair imposition on them to force them to change their cars when they probably cannot afford to do so. I wonder if the hon. Gentleman really means what he is saying.

Dr. Marek: I expect that the hon. Gentleman is trying to make the price increases in four-star petrol, to which I am alluding, seem far better than they would be. Petrol should be valorised each year. At the moment, it is at an historically cheap level, but it will not continue to be so for many more years.
I would always make the health of our nation and children a higher priority than cost. I am not saying that my suggestion is the only way of bringing unleaded petrol into general use throughout the country. There are various ways, and I have suggested three or four. If other ways fail, my last suggestion should not be dismissed by any Government. I hope that the hon. Member for Brigg and Cleethorpes (Mr. Brown) is now satisfied about what I mean.
I do not want to take up too much time because we want to finish the debate by about 10 o'clock. We must advertise and let motorists know that unleaded petrol is available in garages, that is is cheaper and that their car can, with minor alterations, be adjusted to take it.
Have the Government carried out any market research on the effect of their recent publicity campaign, which I welcome? Has it been effective? I know that the Campaign for Lead-Free Air has received £20,000 or £30,000 over three years. That is not very much and I wonder how much money the Government are putting into publicity.
The Government must be careful to ensure that the recent increases in the amount of unleaded petrol being sold do not flatten off and that the number of garages selling unleaded petrol continues to rise. The country would not like the reasonably good figures for the past five or six months to level off and nothing to be done about it. If that were to happen, the Government would have no excuse for not listening to what the Opposition are saying. That is why we have tabled the amendment.

Mr. Robert Adley: The hon. Member for Wrexham (Dr. Marek) has just made a fairly long and, he may judge when he reads it, slightly controversial speech. Nevertheless, we would all agree with some of the things that he said. He made the important point that pollution, which is what this debate is about, is no respecter of national boundaries. He also suggested—a suggestion which I welcome—that we should try to tackle these matters on a partisan basis. He talked about the sales of unleaded petrol in other countries. Will my hon. Friend the Economic Secretary—either when he replies to the debate or at a later date—contemplate the proposition that some of those countries' Governments are possibly less influenced by their motor manufacturers or by the oil companies than our Government are? We have continually heard from the oil companies, and often from the motor manufacturers, that anti-pollution proposals made in connection with the motor car will cost the consumer unspeakable amounts of money. I frequently have grave doubts about the validity of some of those claims.
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I think I am right in saying that this is the third successive Budget in which the Chancellor has introduced inducements to purchase lead-free petrol, but this is the first time that the changes introduced have really bitten or resulted in significant take-up by the motoring public. We need to see the amendments in the context of the levels of inducement that should be offered by the Government to direct the public's purchasing power into environmentally desirable areas.
This brings us to the question of judgment. The hon. Member for Wrexham listed the policies of a number of Governments. He will be aware that the Dutch Government, to whom he referred, recently sought to impose swingeing environmental costs on motorists in Holland, the result of which has been that the Dutch Government are now unable to sustain themselves arid face a general election. I can well understand that the hon. Gentleman might want to bring that about in this country, but I suspect that the Government are right to be cautious in order to avoid falling into the trap that the Dutch Government have set for themselves.
In his Budget speech, my right hon. Friend the Chancellor said that the proposals which relate specifically to reducing the duty on lead-free petrol would cost the Revenue £40 million. Some of us with long memories recall that Labour Governments have an unrivalled ability to spend money, but not always to raise it or run a buoyant economy. The Government have a good track record and should be left to judge the level at which the duty on unleaded petrol should be set.
The environmental tinge to be seen in the motoring components of this Budget is entirely welcome. All these environmental changes are expensive. We would all agree in principle with the remark by the hon. Member for Wrexham that people's health is of paramount importance. He was also correct to say that this country has a lot of catching up to do. But no Government or political party would be doing justice to themselves or the electors if they failed to point out to people that environmental improvements—to do with petrol, water or anything else—are expensive.
I welcome what my right hon. Friend the Chancellor said about unleaded petrol in the Budget speech, in which he said that he hoped his proposals
will contribute to a marked increase in the use of unleaded petrol over the next 12 months."—[Official Report, 14 March 1989; Vol. 149, c. 306.]
He went on to say that the level of vehicle excise duty on buses and coaches should cover their track costs. That is a means of ensuring that the environmental pollution created by certain forms of road vehicle is reflected in the taxation that they pay. I do not want to embarrass my hon. Friend the Economic Secretary by reminding him that we discussed track costs of coaches a few months ago and had a minor disagreement about them. I am sure that he shares my joy and satisfaction that the Chancellor accepted my proposition that coaches were not covering their track costs.
The purpose of clause 1—it is strange to debate it at the end of two days' discussion on the Floor of the House —is to use taxation policy as an instrument of environmental protection, which I strongly welcome. It is a significant change of Government policy which has a potential application in many other areas. As was clearly shown in the intervention made by some of my hon.


Friends in the speech of my hon. Friend the Member for Wrexham, we are short of facts and knowledge about lead-free petrol—[Interruption.]  I am not making a point against the hon. Member for Wrexham. We can all produce learned professorial quotations that inform us of different facts about lead-free petrol or any other subject.
We are short of facts not only about lead-free petrol but particularly about pollution and the damage to health caused by diesel vehicles. I think particularly of diesel vehicles that are heavily used in urban areas, such as coaches. The Royal Commission on environmental pollution in 1984 tackled the issue of pollution from motor vehicles. Its report was referred to in an article by Colin Dryden in The Sunday Times of 2 April this year. He said that smoke from diesel vehicles was
in many circumstances at an unacceptable level … the vehicles themselves have got bigger and more powerful.
He went on to refer to what other countries are doing, much as the hon. Member for Wrexham did, and to quote the American experience of diesel-free and lead-free petrol:
American requirements are far tougher, particularly for buses, on the grounds that they put health more at risk through operating in cities.
My hon. Friend the Member for Wyre (Mr. Mans) spoke about a taxi driver. If that taxi driver had attached himself to the back of his vehicle and inhaled the fumes from it the levels of lead in his blood might well have been significantly different from those which apparently showed up in the "research" to which my hon. Friend referred.
In relation to hydrocarbon oil duties and vehicle excise duties, the proposition that the polluter pays is enshrined in clause 1. Air pollution, particularly from the internal combustion engine, is a significant factor in the problem known colloquially as the greenhouse effect. Large vehicles such as buses and coaches cause other forms of pollution —noise, congestion and damage to the road surface. I therefore hope that the first cautious step that the Government have taken along the road of using taxation policy to force environmental change is but the beginning, and that that policy will be pursued more vigorously in many other areas as the years go by.

Mr. Turner: As always in debates like this, it may be dangerous to take too wide a view on environmental pollution and the problems that people face not just in this country but throughout the world. My contribution will be simple and to the point. I recognise the efforts that the Government are making on this narrow facet of creating a healthier and more pleasant environent by encouraging the use of lead-free petrol. The Government have a reasonable and desirable objective. If we agree with their proposal, we must consider the incentives being built into the policy to achieve that objective.
The contribution of the Labour party is modest, in that we want to urge the Government to go further. That is why we have tabled the amendment. In Wolverhampton a local newpaper, the Express and Star, which has been mentioned in the House several times already, has run an excellent campaign to encourage the use of lead-free petrol. I have tabled an early-day motion congratulating the newspaper on what it has done. Over 1,000 private cars in Wolverhampton have been converted within a short period to use lead-free petrol. The local authority, neighbouring local authorities, the Midlands electricity

board and numerous companies, large and small, all took part in the campaign and have contributed by converting their fleets of vehicles to lead-free petrol.
If the Government gave a greater concession, the campaign would be even more successful. I am speaking in the context of Wolverhampton but no doubt the same is happening in other areas. The Minister of State, Department of the Environment has taken an interest in the subject. There is widespread knowledge about how the campaign in Wolverhampton was orchestrated and the success that it has had.
There is a great role for the Government to go much further because transport is involved in so many facets of government. They could also play a useful part in encouraging other agencies to convert their vehicles. I make no modest claim; I had my car converted to use lead-free petrol, and it is running smoothly. I am pleased to have made that contribution to the campaign in Wolverhampton and to the policy of the Government. That is the essence of what we are trying to achieve.
I hope that we can persuade the Government to accept our modest amendment. Despite the success of the Express and Star's campaign and of campaigns in other parts of the country, and the Government's taxation concession, we should create further incentives for people to convert their vehicles. That would make an important contribution to a better environment for us all and a healthier environment in which to bring up our children. In addition to the other steps that we might take to improve the environment, the amendment would make this country a better place for future generations.

Mr. Nicholas Budgen: I am sure that the hon. Member for Wolverhampton, South-East (Mr. Turner) and I can achieve a fair amount of cross-party agreement on this issue. Pollution is important in Wolverhampton, which is close to the M6 and the M1. Within the next four to six years there will be a major new motorway to the west of Wolverhampton. It will go round our part of the west midlands. That means that children in Wolverhampton will run a greater risk of lead pollution.
The hon. Gentleman was right to recommend warmly the way in which the Express and Star has drawn attention to the advantages in the Budget for those who use lead-free petrol. I join him in saying what a good job the Express and Star has done be its exhortations. Ironically, by drawing attention to the success that the Express and Star has achieved, the hon. Gentleman has to some extent undermined his case for further tax reliefs. It is not the exhortation from the Express and Star—important and influential though the newspaper is—that is causing people to convert their motor cars; they are doing it because they believe that it is in their financial interest to take account of the already generous concession.
It is a matter of judgment what exactly the financial concession should be. There is no objective way of saying whether the more substantial concession proposed in the amendment is right or whether the slightly meaner concession—as the hon. Gentleman would put it—proposed by the Government is right. All we can do is wait and see. Since the Budget and the campaign by the Express and Star, 95 per cent. of garages in Wolverhampton are offering lead-free petrol for sale. We do not know how


many of our constituents are taking advantage of the offer, but presumably the garages in Wolverhampton, like those who have converted their vehicles to lead-free petrol, are selling lead-free petrol not just because they wish—in schoolboy language—to suck up to the Express and Star but because they believe that there is money in it. Presumably they believe that because people are buying the stuff. So far as one can see at present, it seems that the problem is being addressed, as the Foreign Secretary would put it. It may even be partially solved.
There is an element of menace about what the Labour party says. The hon. Member for Wrexham (Dr. Marek) talked about other measures. Let us be careful about that. It would be possible to introduce a law which made it a criminal offence not to convert one's car to lead-free petrol within x months. It would then be possible to make it an offence to use leaded petrol. Cars could then be stopped at random by the police and their fuel tested. For those who believe in the extension of the criminal law that would no doubt be a splendid demonstration of the power of the state over the citizen, but it would be most unwise.
Every time that a citizen is stopped by the police, there is a tendency for him to say that he is not sure whether he likes being stopped by the police, that he feels rather uncomfortable about it.

Mr. Adley: I hesitate to stop my hon. Friend's splendid flow, but a simple way to achieve his objective without involving the police would be for the Government to say that in 10 or 20 years only lead-free petrol will be sold. That is precisely what has been proposed in California. I understand that in about 20 years it intends to do away with the internal combustion engine altogether. Is not that the way that we should be going?

Mr. Budgen: You still need some nark, whether it be a police officer or a man from weights and measures, to go round and see whether the stuff is being sold by somebody.

The Temporary Chairman: Order. I do not have any nark.

Mr. Budgen: When I say "you", I mean the nation. Whether the narks would be men from the Customs and Excise or from the constabulary, there would have to be narks of some sort to enforce the criminal law.
The more our objectives are achieved by encouragement and by tax incentives and the less we use the criminal law the better. I hope that the Labour party will stop waving the banner of other measures in a somewhat menacing way and—

Dr. Marek: Let me put the hon. Gentleman's mind at rest. I have in no way suggested that we should employ the criminal law to stop motorists to see whether they are using unleaded petrol. I hope that that helps him.

Mr. Budgen: It is all very well saying that, but when the price of petrol went up enormously in the great days of the Administration of my right hon. Friend the Member for Bexley and Sidcup (Mr. Heath) under his prices and incomes policy, it was not considered enough to allow the market to discourage people from going fast in their motor cars. The House will recall that an extra limitation was imposed, in that speed limits were reduced, not for reasons of safety but to control fuel consumption. In other words, the criminal law was used not to maintain safety but for economic reasons.
I remember travelling at 60 mph when the limit was 50 mph and being stopped by the police. I was only warned, but I felt extremely resentful. If the criminal law is extended for the wrong reasons, it creates such resentment and the House should remember that the most important condition for the enforcement of the criminal law is that the House and the country should have the consent and co-operation of the public. I repeat that, if the criminal law is used for economic reasons, it creates resentment. Let us by all means think of other measures and talk about ways of giving further financial inducements to whomever one likes, but let us not use the criminal law.

Mr. Illsley: I listened with interest to my hon. Friend the Member for Wolverhampton, South-East (Mr Turner) and the hon. Member for Wolverhampton, South-West (Mr. Budgen). I was beginning to think that I had stumbled into the wrong debate, as I do not have the opportunity to read the Express and Star.
The criminal law is already used to control the sale of diesel fuel. It is a crime to use agricultural diesel in an ordinary motor vehicle. Therefore, although my hon. Friend the Member for Wrexham (Dr. Marek) did not mention the criminal law, the point made by the hon. Member for Wolverhampton, South-West is already upon us.
I should have thought that there would be unanimity on both sides of the Committee about the dangers of lead poisoning. I was surprised to hear the hon. Member for Wyre (Mr. Mans) ask about studies on lead poisoning in adults. One study that I have been made aware of was carried out in Romania and relates to the male reproductive cycle. If that is not a good enough reason to be worried about lead poisoning, I do not know what is.

Mr. Roger King: There might be a problem in Romania, but would the hon. Gentleman care to comment on the reproductive abilities of a normal Glaswegian given the problems of lead in water pipes?

The Temporary Chairman: Order. I hope that the hon. Member for Barnsley, Central (Mr. Illsley) will not follow that line. The amendment relates to the narrow issue of lead in petrol.

Mr. Illsley: I was going to compare the number of vehicles in Romania with those in London, but I do not want to comment on the reproductive systems of Londoners or of people from any other part of the country. I simply want to reinforce the point that recent studies have uncovered the effects of low doses of lead on the male reproductive system.
There is enough information from studies to show the danger of lead poisoning, in particular lead poisoning from petrol. There is an urgent need for the average motorist to use unleaded fuel. However, the only incentive for a higher take-up of unleaded fuel is a financial one. The best way to achieve our objective seems to be to widen the difference in price between leaded and unleaded petrol. I agree that the Government's action since 1987 has gone some way towards achieving our objective. Between 1988–89 the increased take-up was about 1 per cent., but, since the Budget, that figure has more than doubled.
However, some account should be taken of other taxpayers. We must, when introducing legislation to


promote the use of unleaded petrol, take note of the effect of the new measures on the public in general, including non-motorists. The result of the Chancellor's action was that the oil companies simply increased the price of leaded fuel. That resulted in the users of public transport, non-motorists and others having to bear the increased cost.
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The medical evidence in favour of using unleaded petrol is clear, and I await with interest any further remarks of the hon. Member for Wyre on that matter. Lead is a poison which, in large enough doses, causes heart disease, various cancers, respiratory disorders, insanity and other nervous disorders. The two additives in leaded petrol designed to prevent what is called the knocking effect—tetramethyl and tetraethyl—can be lethal. A drop or two on the skin can cause insanity. A few drops more can cause death.
For obvious reasons, most of the research has been concerned with children and expectant mothers, for they are most seriously at risk from lead in petrol. But there is a general case on behalf of the whole human race for the widespread use of unleaded petrol. Lead can be ingested, inhaled and in other ways absorbed into the body. Leaded fuel is responsible for 90 per cent. of the lead pollution in the atmosphere, which in this country, means that about 7,000 tonnes per annum of that type of pollution is pumped into the atmosphere.
To add to the evidence that other hon. Members have adduced to show that lead is a poison, I cite a survey that was carried out in my constituency at the Barnsley district general hospital. A report produced there by, among others, doctors Ward, Watson and Bryce-Smith, found a direct correlation between foetal growth and levels of lead found in placentae.
That survey was carried out 10 years ago. Even then, it said that leaded petrol was a threat to unborn children. Since then, not enough has been done to encourage motorists in the extended use of unleaded fuel. The Government are crowing about the measures they have implemented in recent months, but more could have been done since that report was published.
Nor is enough being done to encourage the petrol companies to supply unleaded petrol to garages. The first unleaded fuel went on sale in my constituency only last year. It is clear, therefore, that only in the last 12 months have many people been able to avail themselves of unleaded fuel.

Mr. Mans: Can the hon. Gentleman point to one occasion, prior to the Government initiative about 18 months ago to promote the use of unleaded fuel, when a Labour Member warned about the dangers of lead in fuel for children? The Government have not been lethargic in their approach to this matter. Prior to the first introduction of the differential, there was not enough evidence to show the sort of effects that the hon. Gentleman has been describing.

Mr. Illsley: The fact that I have cited a report that was produced in my constituency 10 years ago pointing out the dangers of using unleaded petrol shows that such evidence was available. I am sure that there was evidence predating that survey.

Mr. Pike: My hon. Friend may care to know that, before the hon. Member for Wyre (Mr. Mans) came to this place, the Select Committee on the Environment examined this issue. Before the 1987 general election, Opposition Members were expressing concern about lead and other emissions from vehicles. It is wrong, therefore, to suggest that the matter was not raised in Parliament before the Government's recent action.

Mr. Illsley: I am grateful to my hon. Friend for that intervention.
Let us not forget the evidence that is and has been for some time available from other countries. It shows that lead-free petrol has been available for a number of years. EEC recommendations on the subject date from 1973. Japan was promoting unleaded fuel as long ago as 1975. If it is claimed that evidence was not available in this country —and my hon. Friend the Member for Burnley (Mr. Pike) has explained that it was—the Government could have paid attention to the evidence available in other, including EEC, countries, and taken a lead from them.
The take-up levels abroad far outweigh those in Britain. My hon. Friend the Member for Wrexham emphasised this point. In the Netherlands, the availability rate is virtually 100 per cent., as is the take-up. In Denmark the take-up rate is 90 per cent. In West Germany it is 75 per cent. But until recently in the United Kingdom only 5 per cent. of garages were able to supply unleaded petrol.
In West Germany, nearly 42 per cent. of all petrol sold is lead-free; in the Netherlands it is 36 per cent.; in Switzerland, 34 per cent.; in Denmark, 32 per cent.; and in Sweden, 30 per cent. Sales of unleaded fuel in this country increased between 1988 and 1989 from about 1 per cent. to 5 or 6 per cent. Since March, they have increased to about 14 per cent., and all credit to the Government for achieving that increase. I should like to see the figure increased beyond the 20 per cent. that Government spokesmen have been hinting will be achieved by the end of this year. We should try to push it up to the levels of our European counterparts.

Mr. Roger King: The hon. Gentleman has given figures for Switzerland and Germany, two countries which have introduced legislation making it mandatory to provide exhaust catalysts on cars. Those vehicles can run only on unleaded fuel. That is why the take-up in those countries is so much higher than it is here. Similarly in Japan, where they had a totally different problem of atmospheric pollution, not just from lead but from exhaust emissions generally. That obliged the Japanese to switch to exhaust catalysts in an attempt to clean up the atmosphere. So the hon. Gentleman is not being strictly fair in comparing the take-up rates in those countries with the rate in this country, where the fitting of catalysts is not mandatory.

Mr. Illsley: I defer to the hon. Gentleman's superior knowledge of the motor industry. We are not, in considering the amendment, debating the fitting of catalytic converters. That is why the comparisons that I was making are valid. It is a question of deciding how we are to achieve a greater take-up. Remembering that Japan has been dealing with this problem since 1975, we in Britain have had ample time in which to promote, by financial incentives, persuasion or legislation, the use of unleaded fuel. As the hon. Gentleman probably knows,


EC regulations to be introduced by October 1990 will require the majority of motor vehicles produced in this country to run on lead-free petrol.
As to the costs of converting a vehicle, obviously my constituents are in the same position as those of many other right hon. and hon. Members—particularly those of the hon. Members for Brigg and Cleethorpes (Mr. Brown). No one is urging them to convert their vehicles overnight, but the point has been made already that two out of three vehicles can run on unleaded petrol without alteration—and while a conversion cost of about £20 has been mentioned, in my own constituency one major dealer is undertaking that work for only £4.95. Given that there is a lop differential between leaded and unleaded fuel, the savings to be made from using the latter will start to be seen very rapidly.
Research by other countries shows that there is no increase in fuel consumption, no real need for engine modifications by manufacturers, no major increase in prices, and no great changes in refinery operations.

Sir Hal Miller: Does the hon. Gentleman agree that some time was needed to allow British manufacturers to develop the lean burn technology as an alternative to the catalytic converter? One of the problems with the catalytic converter is the need for maintenance, adequate inspection and replacement. Britain was looking to a different route in the form of the lean burn engine. Another reason why we have not progressed at the same pace is that a large number of the vehicles currently on the road are not capable of the comparatively cheap conversion to unleaded fuel to which the hon. Gentleman draws attention. On the one hand there was a desire to make unleaded petrol more widely available, and on the other the interests of the car manufacturer and the car owner. What was the car owner to do with a vehicle that could not be converted? At the same time, manufacturers were exploring a different route.

Mr. Illsley: Since 1975—1973 in the case of the EEC —car manufacturers in other countries have been looking to greater use of unleaded. That was sufficient time to consider the introduction of unleaded fuel to this country. I do not disagree with the hon. Gentleman's argument, but greater pressure over the next few years to adopt unleaded fuel will compel motor manufacturers to comply. In recent years, when vehicle safety or other features were introduced by legislation—one thinks of front and rear seat belts, for example—it was left to manufacturers to incorporate them in future production rather than to the motorist to fit them himself. It may be that over the next few years motor manufacturers will be forced to develop models that use unleaded fuel over a much shorter time scale than would otherwise be the case.
More steps must be taken to encourage a better take-up of lead-free fuel. They include the scrapping of two-star petrol to free storage capacity for unleaded, more advertising campaigns about the benefits of unleaded fuel, and steps to encourage more motorists to convert their cars, even though two out of three vehicles are already capable of using lead-free fuel. Perhaps the best way of achieving those objectives is further to increase the price differential between leaded and unleaded fuel.

Mr. Mans: The Government's present policy is the right one, and little would be gained by increasing the price differential between leaded and unleaded fuel to the extent suggested by Opposition Members. Before I introduced my ten-minute Bill last October on the provision of unleaded petrol and, specifically, engine adjustment, I too believed that the best way of achieving greater take-up was by cutting the price of unleaded petrol considerably.
However, I examined the subject closely last summer and it is now clear to me that many other limitations and reasons are to blame for take-up being slower than we should like. It was a chicken-and-egg argument. There were fewer unleaded petrol outlets, and very few car manufacturers were producing vehicles capable of using it. Of the new vehicles registered last August, 50 per cent. could have been adjusted for unleaded at the point of manufacture but, for a number of reasons, were not.
One reason was the type approval regulations. I am pleased that my hon. Friend the Minister for Roads and Traffic changed those regulations last September. However, the problem associated with those same regulations in a European context remains. Another problem was sheer ignorance in the motor trade and among the general public about which cars could be converted and about whether, having been so converted, they could still use unleaded. I make the point that simply decreasing petrol duty on unleaded fuel would not have the effect that Opposition Members suggest. However, I am pleased that so many of them are taking such a great interest in the subject.
Perhaps I misled the hon. Member for Barnsley, Central (Mr. Illsey) when I suggested that, prior to 1977, there was no evidence that something needed to he done about unleaded petrol. I was trying to make the point that at that time there was an insufficient number of right hon. and hon. Members who understood the problem in all political parties—not just in one particular party.
Also missing was a decent advertising campaign explaining to the public the problems of lead poisoning and that their cars could be converted. Today, we have all those activities up and running. Manufacturers are increasingly producing cars that can run on unleaded petrol. Virtually all the new cars from the Rover Group, for example, do so, and the same applies to many other major groups. That was not the case one year ago.
Garages are making increasing provision for unleaded petrol. It is noticeable that whereas six months ago, only one pump dispensing unleaded petrol would be available on a garage forecourt with virtually no one making use of it, even before the Budget a considerable number of extra outlets were provided, with a noticeably larger number of unleaded pumps installed on the forecourts of certain garages. It is noticeable that there are now queues for unleaded petrol, whereas before there was none. All that occurred without the extra incentive provided in this year's Budget.
I fear that, if we increased the differential, cars that could not be converted or that—for a number of mechanical reasons—it would be wrong to convert would be converted, simply because of a lack of knowledge in the motor trade about which engines could be converted and which could not.

Mr. Robert B. Jones: My hon. Friend mentioned the problem of queueing at unleaded petrol pumps, which has certainly been visible over the past few months since the big swing to unleaded petrol. Garages have also been running out of such petrol at an increasing rate. There is clearly an opportunity for garages and petrol companies to encourage its use by converting more capacity as quickly as possible.

Mr. Mans: My hon. Friend has made his point very well. Supply and demand must be balanced: simply changing one side of the equation rapidly will not necessarily increase the take-up rate over a finite period. I think that the present differential is about right. Motor cars are increasingly being converted to run on unleaded petrol, and there are more and more extra pumps able to provide it. I am not convinced that an increase in differential will add to the take-up rate.
I was interested by some of the figures that the hon. Member for Wrexham (Dr. Marek) came up with. In the Netherlands, where the hon. Gentleman maintains that every garage must have an unleaded petrol pump, the take-up rate—according to the hon. Gentleman's figures —is only 33 per cent., whereas in Germany, where only 70 per cent. of garages have such pumps—

Dr. Marek: I suspect that the reason is the one given by the hon. Member for Birmingham, Northfield (Mr. King). In Germany, legislation has just been introduced requiring catalytic converters.

Mr. Mans: I accept that. I do not think, however, that simply making unleaded petrol pumps compulsory in all garages will necessarily mean a large increase in take-up. There are many other factors, including the type of engine involved. As I have said, I think that the differential is about right; the important thing is to achieve a complete programme to ensure that take-up increases progressively and reaches a much higher level. I am confident that within the year it will reach at least twice the present level of 14 per cent.

Mr. Matthew Taylor: I am pleased to be able to speak to the Social and Liberal Democrat amendments, which provide a stronger financial incentive than any of the others that have been tabled. The starting point—on which everyone seems agreed tonight—is that, while much can be done to promote understanding of the need to turn to lead-free petrol, a financial incentive is needed for a rapid rather than gradual transfer as legislative requirements come to apply to motor manufacturers in any case.
I welcome the Government's recognition of that need through the provision to increase the rebate on excise duty on unleaded petrol, in tandem with changes in the duty levels on two-star and three-star petrol. That has resulted in a differential of perhaps as much as 10p a gallon, since it is not always passed on to the full extent. It has also resulted in considerable publicity, and there has clearly been an impact on the use of lead-free petrol.
The problem is that that is not enough; we would not have put our name to the amendments if we felt otherwise. The full value of the Government rebate will not be passed on to the consumer. I believe that the larger rebate that we propose would guarantee a greater differential on the forecourts, and that scale of differential will be needed to

convince the many motorists who will have to convert their cars that such action is not only environmentally but financially advantageous.
Savings made through the use of lead-free petrol must provide immediate—or as near immediate as possible—compensation for the costs involved in the change. It must be made clear to motorists that they will stand to gain. I wish that we could persuade them without resorting to a financial incentive, but that is clearly not possible, as the Government have accepted by drawing up these measures. I think that they should go further.

Mr. Robert B. Jones: Can the hon. Gentleman explain why, when the Select Committee on the Environment was taking evidence on the matter only two years ago, neither he nor his party submitted any evidence to that effect?

Mr. Taylor: The hon. Gentleman has made a good party point, but it is not a very good point in practice. It is almost impossible from a practical point of view to make submissions on every subject; what we are doing is tabling a constructive amendment tonight.
The amendment would contribute towards a differential of about 15p at the pumps, which would mean a saving of about £45 a year for the average motorist. That is not much in itself, but should be sufficient to motivate many people to convert their cars. In my view, anything else would be inadequate. The Labour amendment adds nothing to what the Government are doing: it is not sufficient to make any real change.
There is no doubt that motorists understand in theory the need for change; a recent survey suggested that four out of five drivers considered that air pollution from car exhausts represented a serious threat to the environment. Yet, although 10·5 million cars on our roads could run lead-free, in February 1989 only about 250,000 had been altered—although the figure will have increased since then. That is where the economic incentives come in.
There is also a need to convince independent retailers that it is in their interests financially—or even that the risk is worth bearing—to promote lead-free petrol in their outlets. Otherwise, we cannot really explain why Britain lags so far behind many of the leading countries; we have heard many figures proving that that is the case.
It is an environmental issue that Governments can tackle effectively. Earlier in the debate, we discussed some of the evidence of the impact that changing to lead-free petrol can have in the health of adults and children. I referred to evidence from America which showed that, between 1976 and 1980, there was a 55 per cent. decrease in the amount of lead in petrol and a 37 per cent. reduction in the average level of lead in blood. That suggests a clear and immediate link between lead in petrol and people's health.
The problem is that, given the current rate of conversion, I am not sure that there will be any reduction whatsoever in the amount of lead in people's blood or in the health hazards. Although cars are undergoing conversion, more cars are coming on to our roads and more mileage is being covered. I wonder how much impact the Government's present measures are having on the problem we are seeking to tackle.

Mr. Roger King: I have been listening to the hon. Gentleman and I think that he is painting an unduly pessimistic picture. He will recall that the European Commission decreed that the amount of lead in leaded fuel


should be reduced dramatically from 1982 onwards from something like 0·04 mg/ml down to 0·015. That is a dramatic reduction of about 70 per cent. in lead emissions into the atmosphere, without taking into account the impact of the general provision of lead-free petrol. So over a number of years, the Government, with the European Commission, have been playing an active part in addressing the issue, and lead levels have reduced dramatically. We are seeking to eliminate the final few per cent.

Mr. Taylor: I accept what the hon. Gentleman says, but I do not consider that we have gone far enough. I do not believe that the measures in the Bill will achieve what the Government consider necessary. I do not think that we should be debating whether there is a problem. Certainly Ministers believe that there is a problem. I am trying to encourage a Government who take a certain amount of pride in radical solutions to be a little more radical in addressing the problem. The Prime Minister could gain publicity points by saying that she is putting a tiger, or a tigress, into people's tanks—she would think that that would be an appropriate expression for her. I hope that the hon. Gentleman does not seek to use the debate to reopen the discussion on whether we need to do something about it. The public and the Government appear to acknowledge that.
I turn from the financial incentives to the need to generate adequate information and publicity. There remains too much ignorance among motorists and others about the costs involved in making the necessary changes and the ease with which those changes can often be made. I do not believe that the problem is simply financial, although I have discussed that at some length. Despite the fact that, according to the survey to which I have referred, four out of five people acknowledge the problem, I suspect that there is insufficient recognition of how easy it is to tackle it, and the fact that, once converted, a car can still use four-star petrol and there are unlikely to be problems unless a car is fitted with a catalytic converter. All those subjects are insufficiently explained.
Our debates tend to concentrate on four-wheeled vehicles, but in my constituency two-star petrol has virtually disappeared as petrol companies will not deliver it, so most garages provide four-star petrol or lead-free petrol and nothing else. Many people are getting in touch with me—and I have written to Ministers at the Department of Energy—about their motor cycles, their lawn mowers and garden implements that they have wheeled out in the recent sunshine; they cannot get the fuel that they have been buying for years. There is virtually no information available to them. A local newspaper recently published an article asking the local motor cycle garage and lawn mower sales point for advice. Their advice was that they were considering the matter, that they were reasonably sure about modern machines being able to run on lead-free petrol, but, apart from that, they did not like to advise anyone and they said that people should refer to the manufacturer. Clearly, that is not a good position for those people.
The Government should adopt the recommendations of CLEAR and spend money on advertising to explain the benefits and the costs of conversion and put in the same efforts that they are making to explain the poll tax that we

debated earlier today. Hon. Members acknowledge the problem, but we must decide how to solve it as rapidly as possible. Amendments Nos. 11 and 12 show clearly that we can move forward by giving people a financial incentive within a time scale to which they are likely to respond.

Mr. Neil Hamilton: I am afraid that I shall have to disappoint the hon. Member for Truro (Mr. Taylor), because I believe that there is an issue that should divide us. I am against not only the proposed amendments but clause 1, for reasons that I have had the opportunirty on previous occasions to dilate on in the House.
I apologise to the hon. Member for Wrexham (Dr. Marek) for not being present at the beginning of his speech. I do not know whether he played a significant part in the Labour party's policy review, but as Socialism has been declared off the agenda it will no longer be appropriate to sing the "Red Flag" at the end of its annual conference. We can assume from his speech that it will be replaced by the green flag.
When Ministers and Opposition Front Bench spokesmen unite in favour of a proposal, hon. Members should regard it with the deepest suspicion. 1 never thought that my hon. Friend the Economic Secretary to the Treasury would be charged with the high crime and misdemeanour of seeking to be fashionable. I am afraid that that is the charge that I shall have to lay against him this evening. My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) made one of the most shameless speeches that I have heard in the six years that I have been an hon. Member. It was a truly disgusting performance, crawling on all fours before the editor of his local newspaper for some cheap mention on a matter that, in other circumstances, he would have disdained. Even he—in what for him was an idiosyncratic speech because it was not idiosyncratic—followed the fashionable nostrums of the time.

Sir Hal Miller: Is not my hon. Friend being a little ungenerous to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), who made his maiden constituency speech and should not therefore attract unduly robust criticism?

Mr. Hamilton: I always regarded the constituency of my hon. Friend the Member for Wolverhampton, South-West as being principally himself. One should not confuse his electorate with his constituents. That is something to be avoided, and I understand that my hon. Friend avoids it as often as possible.
There is no case for a differential in the tax rate between leaded or unleaded petrol.

Mr. Budgen: That has finished my hon. Friend's chances of getting a little job.

Mr. Hamilton: I say to my hon. Friend that for him, as for me, it is far too late to be careful.
There is no case for discriminating between leaded and unleaded petrol because there is no evidence that lead in petrol poses any health risk. An article appeared in a journal which I am sure lies on the bedside of all hon. Members—the British Journal of Developmental Psychology—about relationships between blood lead, behaviour, psychometric and neuropsychological test performance in young children. A sample of 201 inner-city-dwelling children aged five and a half was taken by the university of Birmingham's environment, research


and behaviour research group. I commend it to my hon. Friend the Member for Wolverhampton, South-West. It says:
Results show that the initial correlations between blood lead and the outcome measures were generally few and low. No significant relationship was found between overall IQ and blood lead and the one marginally significant association found when the sample was split by father's occupation proved non-significant on multivariate analysis.
This latest study merely backs up the numerous studies published over the years to which I referred in a previous speech in this House, made to a somewhat smaller audience at 1.14 am on 4 December 1984. 1 gave a number of examples of scientific studies which conclusively proved nothing in relation to this matter.
I will remind the Committee briefly of some of those examples. The Medical Research Council, to which the Government listen carefully, reviewed the subject between 1979 and 1983. It said that the published evidence showed that there was no statistically significant association between body lead burdens and IQs after allowance had been made for the confounding factors. In 1983, the "Digest of Environmental Protection and Water Statistics" reviewed 35 surveys carried out in the European Community. Of those, in only three instances was the reference level set by the EC for the lead content of the blood breached. It was shown that in each of the studies, the reason for the breaches had nothing to do with lead emissions into the atmosphere.

Mr. Budgen: Surely all that my hon. Friend is saying is that there may be some doubt about the technical and scientific evidence used to support the incentives that the Government have put into the fiscal system. He is doing a perfectly good service in drawing attention to the uncertainty of the scientific evidence, but as long as the Government give an incentive merely by way of fiscal encouragement and not by the use of the criminal law, there is nothing to complain about. My hon. Friend may, of course, wish to draw this matter to the attention of the wider public, so that they can take his views into account when deciding whether they wish to avail themselves of the fiscal incentive or to buy what they may regard as more effective petrol.

Mr. Hamilton: That is true, but this tax change costs the Treasury £170 million in a full year. 1 contend that we could have had other tax reductions in its place, such as exempting all Members of Parliament from income tax, which would have had far more demonstrable benefits to society in general by encouraging men of high ability, but of otherwise of no earning power, to come into the House.
There is no evidence for justifying a tax differential of this kind. It is wrong for the burden of proof to be placed on those who say that there is no evidence. The Government are saying that we should try to prove a negative, which we cannot. This is one more unfortunate instance, which we have seen too often in recent years with Governments of all parties, in which the taxation system is being used to dictate the preferences of the consumer.

Mr. Mans: To guide the consumer.

Mr. Hamilton: Perhaps to guide, but in effect to dictate, if we take the same basic attitude about human motivation. The Government are making a mistake—

perhaps not a large mistake—and I am sorry that on this occasion we have decided to be slaves to fashion and have moved in an unfortunate direction.

Mr. Pike: The hon. Member for Tatton (Mr. Hamilton) often expresses minority views in an extreme way. I will say only that to be speaking in opposition to his convinces me that we must be moving in the right direction.
I do not intend to refer to the problem of other vehicle emissions, although lead is only one of the many problems, because the other emissions are not relevant to the debate. The hon. Member for Wyre (Mr. Mans) and other hon. Members referred to the obstacles that prevent people from converting to lead-free petrol and that is valid. But in view of the time, I will not pursue those matters, nor the fact that there are causes of lead poisoning other than vehicle emissions.
This simple amendment deals with a principle that is accepted by both the Government and the Opposition—that to encourage the use of lead-free petrol, an incentive should be provided in the price. We are debating a question of degree. The Labour party's amendment would increase the size of that incentive slightly, while the SLD amendment would make an even greater concession.
9.45 pm
Given that there is such a degree of agreement, I suggest that the best course for the Government to take would he to accept amendment No. 1, which embodies the middle-of-the-road approach. They could thus avoid dividing the Committee. It would be sensible not to argue on this occasion about which party is the greener and about whether the SLD is greener than the Greens. We are talking about very small sums. I hope that, in view of the Government's Budget surplus, they will see the wisdom of conceding that the Labour party is right and accepting the amendment.
On 21 February the hon. Member for Hornsey and Wood Green (Sir H. Rossi), the Chairman of the Select Committee on the Environment, sent the Chancellor a letter which was issued as a press release. The Select Committee was not politically divided; the Chairman's letter received the support of both sides of the Committee. The Chairman of the Select Committee told the Chancellor that he supported the action previously taken by the Government but that he was concerned that there had not been a sufficient increase in the take-up of lead-free petrol. The letter said:
The purpose of this letter, which has the support of my Committee, is to urge you to make a substantial increase in the duty differential, namely, to at least 12p per gallon, which the oil companies should be required to pass on to the motorist in full.
The amendment would bring us nearer to that figure of at least 12p. The Government should acknowledge the unanimity of the Select Committee on the Environment. They should accept our amendment and thus avoid the need for a Division.

Mr. Michael Brown: Unfortunately, my views and those of my hon. Friend the Member for Tatton (Mr. Hamilton) are not the same on this occasion. Perhaps I can explain why. In December 1984, my hon. Friend presented a petition from the residents of Tatton and Eddisbury for redundancy payments for Associated Octel workers who had been made redundant due to the Government's policies on lead in petrol. My hon. Friend was representing


his constituency interests. I. on the other hand, represent a constituency that contains the Conoco and Lindsey oil refineries.
Hon. Members have spoken about the need to move more quickly. I have to point out to the hon. Member for Truro (Mr. Taylor) that we could not move more quickly in my constituency until we had built that catalytic cracker at Immingham in my constituency at a cost of £80 million. We had to do that so that we could make unleaded petrol for use in the tanks of garages all round the country. It takes two years to build a catalytic cracker for oil refineries such as Conoco, so the Government must be acquitted of the charge of not moving quickly enough.
The amendments should be rejected. The Government have been shown the way to encourage people, but we should be careful about going too far too fast.
The hon. Member for Barnsley, Central (Mr. Illsley) talked about the cheapness of conversion. I will willingly take my 20-year old Land-Rover and my eight-year old Jaguar to his constituency if they can be converted to use unleaded petrol for £4.95 each.
It has been a good debate. The Government have struck just the right balance, and we should congratulate my right hon. Friend the Chancellor of the Exchequer on what he is doing.

Mr. Lilley: The amendments call for us to do more of what my right hon. Friend the Chancellor has done in the past three Budgets. Most amendments are critical. However, Miss Boothroyd, like your colleague Mr. McWilliam, you are a noted music lover. You will know that the calls of "encore" at the end of a concert are primarily expressions of praise rather than demands for an action replay of Mahler's Fifth. I take the spirit behind the amendments primarily as praise for what my right hon. Friend the Chancellor has done in increasing the differential to about 14p, not the lower figures that were given by the hon. Members for Burnley (Mr. Pike) and for Truro (Mr. Taylor).
The reason the pump price differential tends to be only about 10p is, as my hon. Friend the Member for Brigg and Cleethorpes (Mr. Brown) said, that there are considerable costs in producing lead-free petrol as against leaded petrol.
Praise from any quarter is welcome, particularly when it comes from the Opposition. It is most unexpected when it comes from my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen). I am grateful to him for it. I suspect that his praise is in the same spirit as that of the great Bacon, from my constituency, who talked of "laudande praecipere"—to praise in order to teach. I agree that we should not use the criminal law to encourage the use of lead-free petrol and are right to proceed by the means we have adopted.
We have got it right and been successful. Since the Budget, the response to the announced changes has been more dramatic than we dared hope. The market share of lead-free petrol has more than doubled—from 6·4 per cent. immediately before the Budget to 14·4 per cent. a month later. The number of filling stations selling lead-free petrol increased dramatically from 30 per cent. before the Budget to about 50 per cent. After the Budget. I assure the hon. Member for Wrexham (Dr. Marek) that it is continuing to increase at the rate of about 250 a week. The hon. Gentleman will be able to work out that that is about 1,000

a month. Given about 20,000 filling stations, that is an extra 5 per cent. a month. The hon. Gentleman's target of 60 per cent. by next year seems to be easily attainable.
The major reason for the rapid increase in the number of petrol stations stocking lead-free petrol is the measure that the Financial Times described as a masterstroke, whereby the price of two-star petrol has increased to that of four-star petrol. As a result, the share taken by two-star, which was already falling and had fallen to 6 per cent. before the Budget, has fallen to about 0·6 per cent. and it has effectively disappeared from most forecourts in the country. Customs and Excise has had to introduce special concessions to petrol companies that have had to return unsaleable two-star and three-star petrol and sought duty remission on it.

Mr. Adley: What will we do for our lawn mowers in two or three years if we cannot get two-star petrol?

Mr. Lilley: It is almost unprecedented for any hon. Member to ask a question for that reason. Most motor cycle and similar engines can take two-star petrol. If they cannot, they can take four-star leaded petrol, but it is appropriate to ask a dealer or garage if one has a particularly rarefied form of engine.

Mr. Matthew Taylor: The Minister will recall that I referred to that matter. The picture is not quite as straightforward as he paints it. Many people who use four-star petrol will see a considerable reduction in the life expectancy of their machines. Simply to refer people to manufacturers is somewhat inadequate. Much effort has been made for motor vehicles. Will the Minister see whether some effort can be made to help those who are concerned about motor cycles and garden machinery?

Mr. Lilley: Perhaps the hon. Member for Truro will welcome the fact that we have not accepted the advice of the hon. Member for Wrexham to ban the sale of two-star petrol. It will remain on sale, so there is the possibility that it will continue to exist.
Another important measure of the changes since the Budget is that Halfords earlier this year was adjusting to lead-free petrol some 200 cars a week. Since the Budget, as a result of its excellent campaign with the Today newspaper, it is adjusting some 6,000 a week at a cost of less than £10 each.
As a result of those changes, I can inform the House that we have increased our estimate of the likely share taken by lead-free petrol by the end of this year, which we had expected to rise to about 15 per cent. It has already reached 14·4 per cent., so we expect that by the end of the year it will have risen to 20 to 25 per cent. I see no reason why by this time next year it should not have reached the target of 30 per cent. that was suggested by the hon. Member for Wrexham.

Mr. Brian Wilson: Will the hon. Gentleman give way?

Mr. Lilley: I apologise to the hon. Gentleman, but I have not enough time to take further intervention.
We are already the fourth highest country in the list of users of lead-free petrol and we are rising rapidly up that list. I hope that that will be welcomed by hon. Members. It is still, nevertheless, necessary for us to dispel the myths about the use of lead-free petrol, and thereby increase 1.he uptake of the fuel. Two thirds of all vehicles on the road


at present can make use of lead-free petrol either already or as a result of a cheap adjustment, which is sometimes available free, but rarely costs more than £20. Those who switch to lead-free petrol can mix with it or change back to leaded petrol if they wish or if lead-free petrol is not available. Most tests have shown no discernible loss of performance in vehicles using lead-free petrol.
The Government since the Budget have given a boost to lead-free petrol with a £1 million publicity campaign. I believe that the Opposition will welcome that use of Government money to get the facts over.
The differential in price at the pumps should in due course widen. At present, about lop of the 14p cost advantage is generally passed on to the customer. As the uptake of lead-free petrol increases and the overheads of the original cost of producing it are more widely spread, it should be possible for the petrol companies to pass on an increased proportion of that 14p differential.

Mr. Wilson: Will the hon. Gentleman give way?

Mr. Lilley: I have already said that I shall not.
We believe that the United Kingdom has now reached a position where the rate of improvement in the take-up of lead-free petrol has reached a process of self-sustaining growth and that the present level of benefit for lead-free petrol is at about the desirable level. It is the highest in Europe, apart from Denmark, and therefore quite satisfactory.

Dr. Marek: I have already said what the Labour party policy is, but I must say at this stage that I am not completely against what the Economic Secretary has said. In his statement there has been the expectation that the Government will reach the targets that I set them for the sale and the availability of unleaded petrol. I welcome that statement and I look forward to those targets being achieved.
The Chairman of the Select Committee on the Environment asked the Government to ensure that there would be a 12p differential between leaded and unleaded petrol and to require the oil companies to pass that on to the motorists. In that respect, we do not believe the Government have gone far enough.
Two Aunt Sallies have been raised. First, the hon. Member for Wolverhampton, South-West (Mr. Budgen) said that I had talked about further measures and then implied that we would set the police on the motorists to check whether they had unleaded petrol in their tanks. Nothing could be further from the truth. There are far better ways of ensuring that motorists use unleaded petrol. Secondly, the hon. Member for Tatton (Mr. Hamilton) declared his interest, or had it declared for him by his hon. Friend the Member for Brigg and Cleethorpes (Mr. Brown). He said that he had employees involved in making the lead for leaded petrol. Perhaps he should have tried to redeploy those employees instead of allowing them to be made redundant.
We do not think that the Government have gone far enough. That is why we shall seek to press our amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 149, Noes 215.

Division No. 194]
[10 pm


AYES


Abbott, Ms Diane
Jones, Martyn (Clwyd S W)


Adams, Allen (Paisley N)
Kaufman, Rt Hon Gerald


Allen, Graham
Kennedy, Charles


Anderson, Donald
Kinnock, Rt Hon Neil


Archer, Rt Hon Peter
Kirkwood, Archy


Ashdown, Rt Hon Paddy
Lamond, James


Ashton, Joe
Leadbitter, Ted


Banks, Tony (Newham NW)
Lewis, Terry


Barnes, Harry (Derbyshire NE)
Livsey, Richard


Barnes, Mrs Rosie (Greenwich)
Lofthouse, Geoffrey


Barron, Kevin
Loyden, Eddie


Battle, John
McAllion, John


Beckett, Margaret
McAvoy, Thomas


Beith, A. J.
McFall, John


Bell, Stuart
McKay, Allen (Barnsley West)


Bermingham, Gerald
McKelvey, William


Blunkett, David
McNamara, Kevin


Boateng, Paul
Madden, Max


Boyes, Roland
Mahon, Mrs Alice


Bradley, Keith
Marek, Dr John


Brown, Gordon (D'mline E)
Marshall, Jim (Leicester S)


Brown, Nicholas (Newcastle E)
Martin, Michael J. (Springburn)


Buchan, Norman
Meacher, Michael


Buckley, George J.
Meale, Alan


Campbell, Menzies (Fife NE)
Michael, Alun


Campbell, Ron (Blyth Valley)
Michie, Bill (Sheffield Heeley)


Carlile, Alex (Mont'g)
Michie, Mrs Ray (Arg'l &amp; Bute)


Clark, Dr David (S Shields)
Mitchell, Austin (G't Grimsby)


Clarke, Tom (Monklands W)
Moonie, Dr Lewis


Clay, Bob
Morgan, Rhodri


Clelland, David
Morris, Rt Hon J. (Aberavon)


Cohen, Harry
Mullin, Chris


Cook, Frank (Stockton N)
Murphy, Paul


Cook, Robin (Livingston)
Nellist, Dave


Corbett, Robin
Orme, Rt Hon Stanley


Cousins, Jim
Pike, Peter L.


Cryer, Bob
Powell, Ray (Ogmore)


Cunliffe, Lawrence
Quin, Ms Joyce


Darling, Alistair
Radice, Giles


Davies, Rt Hon Denzil (Llanelli)
Randall, Stuart


Davis, Terry (B'ham Hodge H'I)
Redmond, Martin


Dixon, Don
Reid, Dr John


Doran, Frank
Richardson, Jo


Douglas, Dick
Robertson, George


Duffy, A. E. P.
Rogers, Allan


Dunnachie, Jimmy
Rooker, Jeff


Ewing, Mrs Margaret (Moray)
Ross, Ernie (Dundee W)


Fatchett, Derek
Ruddock, Joan


Fearn, Ronald
Shore, Rt Hon Peter


Field, Frank (Birkenhead)
Skinner, Dennis


Fisher, Mark
Smith, Andrew (Oxford E)


Flynn, Paul
Smith, C. (lsl'ton &amp; F'bury)


Foster, Derek
Smith, John P.


Foulkes, George
Snape, Peter


Fraser, John
Soley, Clive


Fyfe, Maria
Spearing, Nigel


Godman, Dr Norman A.
Steinberg, Gerry


Golding, Mrs Llin
Stott, Roger


Gordon, Mildred
Taylor, Matthew (Truro)


Graham, Thomas
Turner, Dennis


Grant, Bernie (Tottenham)
Vaz, Keith


Griffiths, Win (Bridgend)
Wall, Pat


Grocott, Bruce
Wallace, James


Henderson, Doug
Walley, Joan


Holland, Stuart
Wardell, Gareth (Gower)


Home Robertson, John
Welsh, Andrew (Angus E)


Hood, Jimmy
Welsh, Michael (Doncaster N)


Howarth, George (Knowsley N)
Williams, Rt Hon Alan


Hughes, John (Coventry NE)
Wilson, Brian


Hughes, Robert (Aberdeen N)
Winnick, David


Hughes, Roy (Newport E)
Worthington, Tony


Hughes, Sean (Knowsley S)
Wray, Jimmy


Illsley, Eric



Ingram, Adam
Tellers for the Ayes:


Janner, Greville
Mr. Robert N. Wareing and


Jones, Barry (Alyn &amp; Deeside)
Mr. Ken Eastham.


Jones, Ieuan (Ynys Môn)







NOES


Adley, Robert
Garel-Jones, Tristan


Aitken, Jonathan
Gill, Christopher


Alexander, Richard
Glyn, Dr Alan


Alison, Rt Hon Michael
Goodhart, Sir Philip


Amess, David
Goodson-Wickes, Dr Charles


Amos, Alan
Gow, Ian


Arbuthnot, James
Grant, Sir Anthony (CambsSW)


Arnold, Tom (Hazel Grove)
Greenway, Harry (Ealing N)


Ashby, David
Greenway, John (Ryedale)


Atkins, Robert
Gregory, Conal


Baker, Nicholas (Dorset N)
Griffiths, Peter (Portsmouth N)


Banks, Robert (Harrogate)
Grist, Ian


Batiste, Spencer
Ground, Patrick


Beaumont-Dark, Anthony
Grylls, Michael


Bellingham, Henry
Gummer, Rt Hon John Selwyn


Bennett, Nicholas (Pembroke)
Hague, William


Biffen, Rt Hon John
Hamilton, Neil (Tatton)


Blackburn, Dr John G.
Hanley, Jeremy


Body, Sir Richard
Hannam, John


Bonsor, Sir Nicholas
Hargreaves, A. (B'ham H'll Gr')


Boscawen, Hon Robert
Harris, David


Boswell, Tim
Haselhurst, Alan


Bottomley, Peter
Hayes, Jerry


Bottomley, Mrs Virginia
Hayward, Robert


Bowis, John
Heathcoat-Amory, David


Braine, Rt Hon Sir Bernard
Heddle, John


Brandon-Bravo, Martin
Heseltine, Rt Hon Michael


Brazier, Julian
Higgins, Rt Hon Terence L.


Bright, Graham
Hind, Kenneth


Brown, Michael (Brigg &amp; Cl't's)
Hogg, Hon Douglas (Gr'th'm)


Bruce, Ian (Dorset South)
Howard, Michael


Budgen, Nicholas
Howarth, G. (Cannock &amp; B'wd)


Burns, Simon
Howell, Rt Hon David (G'dford)


Burt, Alistair
Hughes, Robert G. (Harrow W)


Butler, Chris
Hunt, David (Wirral W)


Butterfill, John
Hunter, Andrew


Carlisle, Kenneth (Lincoln)
Irvine, Michael


Carrington, Matthew
Irving, Charles


Carttiss, Michael
Jack, Michael


Channon, Rt Hon Paul
Jackson, Robert


Chope, Christopher
Janman, Tim


Clark, Dr Michael (Rochford)
Johnson Smith, Sir Geoffrey


Clark, Sir W. (Croydon S)
Jones, Gwilym (Cardiff N)


Colvin, Michael
Jones, Robert B (Herts W)


Coombs, Anthony (Wyre F'rest)
Kellett-Bowman, Dame Elaine


Coombs, Simon (Swindon)
Key, Robert


Couchman, James
Kilfedder, James


Currie, Mrs Edwina
King, Roger (B'ham N'thfield)


Davis, David (Boothferry)
Kirkhope, Timothy


Devlin, Tim
Knapman, Roger


Dorrell, Stephen
Knight, Greg (Derby North)


Dover, Den
Knowles, Michael


Dunn, Bob
Knox, David


Durant, Tony
Lamont, Rt Hon Norman


Dykes, Hugh
Latham, Michael


Evans, David (Welwyn Hatf'd)
Lawson, Rt Hon Nigel


Evennett, David
Lightbown, David


Fallon, Michael
Lilley, Peter


Favell, Tony
Lloyd, Peter (Fareham)


Field, Barry (Isle of Wight)
Lyell, Sir Nicholas


Fishburn, John Dudley
McCrindle, Robert


Fookes, Dame Janet
MacGregor, Rt Hon John


Forman, Nigel
MacKay, Andrew (E Berkshire)


Forth, Eric
Maclean, David


Fox, Sir Marcus
McLoughlin, Patrick


Franks, Cecil
McNair-Wilson, Sir Michael


Freeman, Roger
McNair-Wilson, P. (New Forest)


French, Douglas
Major, Rt Hon John


Gardiner, George
Malins, Humfrey





Mans, Keith
Ryder, Richard


Maples, John
Sackville, Hon Tom


Marlow, Tony
Sainsbury, Hon Tim


Marshall, Michael (Arundel)
Sayeed, Jonathan


Martin, David (Portsmouth S)
Shaw, David (Dover)


Mates, Michael
Shaw, Sir Giles (Pudsey)


Maude, Hon Francis
Shephard, Mrs G. (Norfolk SW)


Mellor, David
Shepherd, Colin (Hereford)


Miller, Sir Hal
Skeet, Sir Trevor


Mills, Iain
Smith, Tim (Beaconsfield)


Mitchell, Andrew (Gedling)
Speller, Tony


Mitchell, Sir David
Spicer, Sir Jim (Dorset W)


Montgomery, Sir Fergus
Stanley, Rt Hon Sir John


Morrison, Sir Charles
Steen, Anthony


Moss, Malcolm
Stevens, Lewis


Neale, Gerrard
Stewart, Andy (Sherwood)


Needham, Richard
Stradling Thomas, Sir John


Nelson, Anthony
Summerson, Hugo


Neubert, Michael
Tapsell, Sir Peter


Nicholson, David (Taunton)
Taylor, Ian (Esher)


Onslow, Rt Hon Cranley
Taylor, John M (Solihull)


Oppenheim, Phillip
Thompson, D. (Calder Valley)


Page, Richard
Thurnham, Peter


Paice, James
Townend, John (Bridlington)


Parkinson, Rt Hon Cecil
Tredinnick, David


Patnick, Irvine
Trippier, David


Pattie, Rt Hon Sir Geoffrey
Trotter, Neville


Pawsey, James
Vaughan, Sir Gerard


Porter, David (Waveney)
Waddington, Rt Hon David


Powell, William (Corby)
Waller, Gary


Price, Sir David
Wheeler, John


Raison, Rt Hon Timothy
Whitney, Ray


Redwood, John
Widdecombe, Ann


Rhodes James, Robert
Wolfson, Mark


Riddick, Graham
Wood, Timothy


Ridley, Rt Hon Nicholas
Younger, Rt Hon George


Ridsdale, Sir Julian



Roberts, Wyn (Conwy)
Tellers for the Noes:


Rost, Peter
Mr. Alan Howarth and


Rowe, Andrew
Mr. Sydney Chapman.


Rumbold, Mrs Angela

Question accordingly negatived.

It being after Ten o'clock, THE SECOND DEPUTY CHAIRMAN left the Chair.

BUSINESS OF THE HOUSE

Ordered,
That, at this day's sitting, the Ways and Means Motion may be proceeded with, though opposed, until any hour.— [Mr. Maclean.]

FINANCE BILL

(Clauses Nos. 1, 32, 33, 44, 51 and 138)

Considered in Committee.

[MISS BETTY BOOTHROYD in the Chair]

Clause 1 ordered to stand part of the Bill.

Bill (Clauses 1, 32, 33, 44, 51, and 138), reported without amendment; to lie upon the Table.

WAYS AND MEANS

VALUE ADDED TAX (OVERPAYMENTS)

Resolved,
That provision may be made about refunding overpayments of value added tax.—[Mr. Maclean.]

Personal Equity Plans

Mr. Chris Smith: I beg to move,
That the Personal Equity Plan Regulations 1989 (S.I., 1989, No. 469), dated 14th March 1989, a copy of which was laid before this House on 14th March, be revoked.
The statutory instrument consolidates the position in relation to personal equity plans. It also enshrines within the consolidation changes announced by the Chancellor in his Budget in March. The changes formed a major part of the Chancellor's Budget speech, yet they are not formally part of the Finance Bill, because personal equity plans are covered by regulation rather than by primary legislation. However, the House should debate PEPs and, in particular, the changes which the Chancellor has brought in, in order, if nothing else, to expose just how generous the Government are in their provisions for equity portfolios, to a certain extent to the disadvantage of other forms of saving.
Let me for a moment chart the history of personal equity plans. The Chancellor announced the introduction of the plans in his Budget on 18 March 1986. They were brought in as a tax incentive to encourage savings through the purchase of shares. Anyone over 18 could invest at that stage up to £2,400 a year in a PEP. Provided the shares were held for a minimum period of between 12 months and two years, any capital gains and reinvested dividends were to be free of tax. The scheme started on 1 January 1987.
In his Budget speech three months later, the Chancellor reported on the progress of PEP schemes:
In the first month of the scheme, more than 2,000 people a day took out personal equity plans, many of them first-time investors, as I had hoped."—[Official Report, 17 March 1987; Vol. 112, c. 824.]
A year later, in his 1988 Budget speech, the Chancellor again reviewed progress on PEPs:
Over a quarter of a million people took out PEPs in 1987". —[Official Report, 15 March 1988;, Vol. 129, c. 1004.]
One can tell immediately from the figures that the take-up of PEPs had fallen off in the later months of 1987 compared with the early months.
The annual limit was raised in the 1988 Budget from £2,400 to £3,000, and the amount which could be invested in a unit trust or an investment trust in Scotland was increased from £420 to £540. A number of other changes took place in August 1988 and January 1989, but despite the changes that were made in the Budget last year, and despite the changes that have subsequently occurred, the take-up of PEPs has noticeably flagged in recent years.
In that respect, let me quote from a note on personal equity plans supplied to my hon. Friend the Member for Edinburgh, South (Mr. Griffiths) by the Library:
Despite the Chancellor's optimism over the introduction of PEPs, other commentators view them as less successful. The Independent described 1987 as the year PEPs 'fell flat', and the Times headed its article 'Birthday blues for unpopular PEPs'. Figures for 1988 given by the Inland Revenue are that 100,000 schemes were taken out and £150 million invested in such schemes. No effort is made to distinguish first-time investors but according to a number of financial journalists, the general feeling of the institutions involved in PEPs is that very few are first-time investors. On the whole the main attraction of PEPs is to the richer investors who find PEPs a useful way of repackaging existing portfolios.

Mr. Ian Taylor: I am not sure whether the hon. Gentleman is pleased or displeased by the fact that there

has been a less than dramatic take-up of PEPs, but does he accept that one reason for the relatively low figures is simply the administrative problems that many City firms have had in introducing them? Therefore, does he accept that the proposals in the Finance Bill are to be more than welcomed and should lead to a dramatic increase in their acceptability?

Mr. Smith: There are, as the hon. Gentleman will know, no proposals in the Finance Bill this year, because it does not cover PEPs. There are proposals in the regulations that we are debating which, to a certain extent, ease the administration of the PEP schemes. On some of those I have little quarrel with the Government, but on some of them I do, and I shall deal with those in a moment.
One reason for the relatively low take-up of PEPs by first-time investors is that the capital gains tax advantages which apply to PEPs are only of any use to investors who have already used up their £5,000 capital gains tax-free allowance. For many small savers, certainly virtually all first-time perchasers of equities, such a proviso does not exist.
The Chancellor announced a number of changes in his Budget this year which are enshrined in the regulations. Let me briefly outline those changes. First, the annual contribution limit goes up by a substantial amount, from £3,000 to £4,800. Secondly, the allocation to unit trusts or to investment trusts goes up by an even more substantial percentage from within that overall total—£.540 before to £2,400 now.
Thirdly, the form of contribution changes. Before, all contributions to PEPs had to be in cash. Now, under these regulations, they can be either in cash or in new issue shares.
Fourthly, the minimum holding period which was, under the previous regulations, one year, is now abolished. Fifthly, the cash holding rules which used to provide for a figure of £300 after the first year, has also been abolished.
Those changes represented an attempt on the part of the Chancellor to revive a scheme that was flagging before the Budget, and a number of commentators in the immediate aftermath of the Budget noted precisely that. The Financial Times on 18 March headed its article:
PEPs are given the kiss of life.
The Times on the same day headed its article:
Personal equity plans pepped up thanks to Chancellor's tinkering.
Before coming to the criticisms that my hon. Friends and I have of a number of aspects of the regulations, I have two questions for the Financial Secretary. The first relates to the fifth report of the Select Committee on Statutory Instruments. That Committee found that the wording of regulation 5(1) was unclear. It requested a memorandum from the Department on the subject. That memorandum was forthcoming, after which the Select Committee concluded:
The Committee feels that although the intention of the Regulations is sensible, the drafting is not and that the provision can certainly be read as requiring a plan manager to carry out all transactions at the price he could obtain for the investments, namely the bid price.
Will the Government amend regulation 5(1) to clarify the meaning, in accordance with the advice of that Committee?
My second question relates to the press release issued by the Inland Revenue on 3 May, in which it announced that it would be relaxing the 75 per cent. United Kingdom


equity requirement for unit trusts and investment trusts. This issue has been causing concern to many in the equities industry, especially in Scotland, in relation to investment trusts. My attention had already been drawn to the subject by my hon. Friend the Member for Edinburgh, Central (Mr. Darling). Will the Government introduce the further regulations in due course, and, if so, when? When we see the contents of those regulations we will know whether to express doubts about the proposed relaxation.
We have three main criticisms of the regulations. The first concerns the inclusion of new privatisation shares in PEP portfolios. The Financial Secretary wrote on 26 April to my hon. Friend the Member for Cardiff, West (Mr. Morgan) and I fear that his letter was somewhat disingenuous on the subject. He said that it had always been possible in theory within personal equity plans to include privatised issues of shares. But under the processes of privatization—the need to bid for shares and the uncertainty over the allocation that one will receive—the inclusion of such portfolios of shares within PEPs was difficult to arrange.
The regulations before us make it easier to include privatised issues within a portfolio. They enable an application to be made, and however great the allocation turns out to be—provided the overall ceiling is not exceeded—that can then be included within the PEP portfolio. That is unacceptable to us. Tax relief will effectively be given both on dividend income and on capital gains income, especially if the £5,000 threshold has already been exceeded, when purchasing privatisation shares. It is nothing more than a bribe to encourage a greater take-up of privatisation issues.
A scrutiny of the performance of privatisation shares in the period since their original issue can be instructive. I put aside the oil and gas industries, which have performed particularly badly because of the impact of the world fuel market, and also British Petroleum, which was affected equally dramatically by the rather gauche timing of the flotation. However, the price of Rolls-Royce shares in April 1987 was 170p but six months later was 136p. The Trustee Savings bank share price on its flotation in September 1986 was 100p, but six months later was 86½p. When the British Airports Authority was floated in July 1987, its share price was 100p, but six months later was 109p. None of them could be described as performing particularly well.
The potential purchaser of a water or electricity share will enjoy not just a knockdown price—we can be certain that the Government will ensure that—but tax bonuses as well.

Mr. Ian Taylor: I find it increasingly difficult to follow the hon. Gentleman's line of argument. If the Treasury offered those shares at such a knockdown price, why is it that their prices have fallen further? Is it not the case rather than the Treasury negotiated an extremely good deal, in a variety of market conditions, that was also good for the British taxpayer?

Mr. Smith: The hon. Gentleman should have allowed me to develop my argument. In privatisation issues, we have consistently seen an initial under-valuation and a subsequent considerable increase over a short period, but then a downward trend over a longer period.

The Financial Secretary to the Treasury (Mr. Norman Lamont): If those shares were consistently under-valued,

how can the hon. Gentleman maintain his argument that the public get a very bad deal when they invest in privatisation issues?

Mr. Smith: The pattern has been one of initial gains, but in the longer term a number of privatisation issues —not all, because British Telecom, for example, has done very nicely for the people who originally purchased its shares—have not presented such a good picture.
It must also be remembered that the tax relief available under PEPs will be given at the expense of all other taxpayers. The public, who own water and electricity at present, will themselves pay for stripping their own assets; the owners will pay for the disposal of what they now own. It is like paying a burglar a subsidy to raid one's own home. I am sure that there will be some aggressive marketing of PEP packages as part of the forthcoming privatisation issues. The inclusion of those shares within personal equity plans, with all the tax advantages that go with them, is something that we cannot possibly accept.

Mr. James Paice: If the hon. Gentleman is so anxious that privatisation shares should not be part of PEPs, can he explain why such shares should be considered to be in a separate class from any other investment? If an investor wants to buy shares, he must take the rough with the smooth, and we are giving him tax relief through PEPs on that basis. Why should he be disadvantaged through buying a particular set of shares?

Mr. Smith: Privatisation shares should be regarded differently precisely beause they are public assets being sold to private investors. I do not believe that the public, through their taxes, should subsidise that disposal.
We are very concerned about two further issues. The first is the removal of the one-year rule. The concept of the mature portfolio, which was part of the original thinking behind PEPs, has gone with this change, which could mean a substantial immediate tax-free capital gain from a new share issue, whether privatised or not. Management fees will, of course, place a limit on the benefit to be gained, but the removal of the one-year rule nevertheless offers scope for large-scale wheeling and dealing in shares, to the detriment of the Exchequer and hence of all taxpayers.

Mr. Tim Smith: rose—

Mr. Smith: I will not give way to the hon. Gentleman. Time is limited, and I know that a number of hon. Members want to speak.
Our other worry is that preferential treatment will be given to equities as compared to other forms of saving. We were told in advance that the Budget would be one for the saver, but the only action that the Chancellor took was to make generous provision in the regulations for equity purchase. Of course we must encourage saving: the Government ought to be all too well aware that personal savings appear to be at an all-time low. But where were the measures in the Budget to stimulate building society investment and sort out some of the inequitable rules relating to building society interest? Where were the provisions to establish regionally based schemes for the more effective financing of industry? Where were the provisions to assist the friendly societies? The preference for equities that the regulations are building into the tax system is, in our view, neither sensible nor just.
For all those reasons, we believe that the Government must go back to the drawing board. The economy as a whole, and ordinary people wanting to save and invest, deserve better than these regulations.

The Financial Secretary to the Treasury (Mr. Norman Lamont): I welcome the opportunity of a debate on the changes announced in personal equity plans. I must say that I marvel at the boldness of the Opposition's promise to vote against the regulations, and I am delighted that they are going to do so.
As the hon. Member for Islington, South and Finsbury (Mr. Smith) has said, PEPs were first introduced in the 1986 Budget, and despite some pessimistic articles in the financial press, they have played a successful part in achieving our objective of reversing the long-term decline in individual shareholding. Whereas, 10 years ago, only 7 per cent. of the adult population held shares, the figure is now 20 per cent.—one in five of the population—pushing hard to reach a level similar to that in the United States. We regard that as a tremendous achievement, on which we want to build.
In the first year of the scheme, 270,000 schemes were started. As the hon. Gentleman said, in 1988, only 120,000 schemes were taken out. That was a setback, but considering that there had been the biggest correction to the stock market since 1929, it was not all that surprising or disappointing.
I take issue with the Opposition's conviction that we are providing tax relief only for wealthy existing shareholders. The hon. Gentleman chose to quote a stockbroker. I quote a plan manager not from the City of London but from the Bradford and Bingley building society, who found that most investors had never owned shares before, that a majority were women, that semi-skilled and unskilled workers bought more PEPs than managers and professionals, and that most invested well below the maximum possible.
Nevertheless, it was clear from discussions at the end of last year that a number of managers wanted changes in the administration of the scheme and felt that some requirements were unnecessary and added to the cost of administration. Unit trust groups keen to market the idea found that it was uneconomical to offer unit trust—only PEPs with a limit of £540 a year. That is why we introduced changes increasing the overall limit to £4,800 and substantially increasing the annual limit on a unit or investment trust to £2,400. The philosophy behind those changes was that we had increased the overall limit for direct investment in shares, that unit and investment trusts were a good way to get into the market and that we wanted a total limit that was economic for plan managers.
At the same time, we thought it only right to require that unit and investment trusts should invest mostly in United Kingdom equities. I know that that has created disappointment in some quarters, but that was the original requirement of the scheme for direct investment, and it would have been inconsistent not to apply it to unit trusts and investment trusts.
As the hon. Member for Islington, South and Finsbury said, in future, investors may subscribe to a new public issue of shares, and then transfer them into a PEP. As my

hon. Friend the Member for Cambridgeshire, South-East (Mr. Paice) asked in an intervention, why not? We want to help not only privatisation new issues but all new issues, and it is right that they should be allowed in PEPs. Finally, we simplified the administration in a number of ways, so that it will no longer be necessary to take out a new plan each year. I believe that the administrative changes that we have introduced, in addition to the changes in the aggregate amounts that may be invested, will do a tremendous amount to boost the popularity of the scheme.

Mr. Tony Worthington: The Minister will recall that in the Budget debate in 1986, the Chancellor said that PEPs were
specially designed to encourage smaller savers, and particularly those who may never previously have invested in equities in their lives."—[Official Report, 18 March 1986; Vol. 94, c. 178.]
Will the Minister contradict the findings of the Institute of Fiscal Studies that only one third of those investing in PEPs were first-time investors in equities?

Mr. Lamont: Learned though the Institute of Fiscal Studies is on tax matters, I am not quite sure that its opinion should be considered better than that of PEP managers at the Bradford and Bingley building society who are actually promoting the scheme, know who their customers are and have stated that in their part of the market many investors are new, first-time investors.
Although the hon. Member for Islington, South and Finsbury tried to assert the contrary, I stress that the tax relief does benefit small investors. The income tax relief can certainly benefit those paying the basic rate of tax. For example, someone with £4,800 invested and paying the basic rate of income tax would save about £60 a year, based on a return of 5 per cent. producing dividends of £240 a year.
We notice that a number of plan managers are marketing high-income plans and investing PEPs in shares offering high yields. That will be of special importance and attraction to the small investor. As regulations now make it possible for investment trusts to offer capital and income shares in a PEP, the attraction to small investors will increase further.
The Budget changes have caught the imagination and enthusiasm of plan managers and investors. The largest plan manager, Lloyd's, has taken £12 million of new investment since the Budget. A number of firms that had stopped offering PEPs have announced that they will return to the market—such as Framlington, Fidelity and Barclayshare. A number of new plan managers have entered the market offering a range of new products. I welcome the new mood of confidence, which shows that the changes have been welcomed and will be a considerable success.
We have received representations from the investment trusts about the new rule that from April 1990 unit or investment trusts must be 75 per cent. invested in shares that qualify for direct investment in a PEP. I gave the explanation for that change and believe that it is a reasonable requirement, given the greatly increased opportunities for trusts. We obviously do not wish to harm existing investment trusts within the original limit of £750, which used to be the alternative to a full plan. Some of those investment trusts did not meet the 75 per cent.


requirement. We did not wish to harm the investment trusts that marketed their product under the old regime by suddenly imposing a new rule on them.
We therefore announced that it will be possible to continue to invest £750 in a unit or investment trust that does not meet the 75 per cent. United Kingdom requirement. It will be an alternative to investing up to £2,400 with the 75 per cent. restriction. We announced that unquoted shares in a unit or investment trust portfolio may count towards the 75 per cent. requirement, which will especially help those who specialise in venture capital.

Mr. Alan Beith: Will not the Financial Secretary have increasing difficulties squaring the United Kingdom equity limitation with movement to free capital in Europe? Will it not increasingly be regarded as discriminatory for non-United Kingdom shares to be singled out in this way?

Mr. Lamont: We are not infringing any EC law. A number of countries that offer fiscal incentives for investment have imposed the same limits as we have.
The hon. Member for Islington, South and Finsbury referred to the comments by the Select Committee on Statutory Instruments about the drafting of the regulations, which of course I take seriously. It is a relatively minor point, but we shall consider making a drafting change.
The hon. Member for Islington, South and Finsbury asked whether we shall amend regulations to deal with the other changes that we have made. The answer is yes, and we shall be doing so well in advance of the April 1990 start date for the new 75 per cent. content and the other aspects of the regulations.

Mr. Roger Knapman: Will my right hon. Friend deal with the allegation that the Government are having to bribe investors on privatisation issues? I spent most of January and February on the Committee considering the Water Bill listening to the hon. Member for Copeland (Dr. Cunningham) suggesting that we are giving away assets. I therefore cannot follow why it is necessary to bribe investors.

Mr. Lamont: It is hardly worth considering that allegation, but as it has been raised I should deal with it.
The hon. Gentleman is living in something of a dream world. He claims that there are people making vast capital gains on the stock market and privatisation issues, yet in the next breath he says that all the privatisation issues have been an enormous flop. I was interested to note that his speech corresponded with the press release he distributed this afternoon. He regarded the fact that we were removing the one-year rule as an enormous gift to our friends in the City, and said that getting rid of the rule would allow substantial tax-free capital gains for all those who
wheel and deal in shares".
The hon. Gentleman is obviously not aware that it has always been possible to sell shares with a PEP either in the first year or subsequently. I assume that he objects to the fact that in future the proceeds need not be kept in the plan

for a full 12 months. That is true, but tax relief in a PEP continues to grow the longer people keep their investments in the plan. We got rid of the 12-month rule simply because it was a wholly unnecessary and bureaucratic imposition on plan managers. The average amount invested in a PEP is £1,700. If the hon. Gentleman believes that there are geniuses around who can invest £1,700 in any year, walk away with huge tax-free sums and live happily ever after, he is living in an unreal world. The hon. Gentleman has muttered many incantations from the book of common prejudice, but he has not given us a serious analysis of PEPs tonight.
The Opposition are terrified about ownership. A few weeks ago, in an article in The Independent, the hon. Member for Birkenhead (Mr. Field) described how, when he was canvassing, people came up to him in his constituency. As they owned a handful of British Telecom shares, they talked to him as though they were relatives of the Duke of Westminster. What a terrifying development!
The Labour party is terrified of ownership, because it will make people independent. Worse than that, ownership will make the Labour party's own policies utenable. What was it that forced Labour to change its policies on housing? It was ownership in housing. What forced it recently to change its industrial policy on social ownership and nationalisation? It is now committed only to taking back into public ownership British Telecom and water. What is the reason for that? Privatisation and wider share ownership have brought about that change. When water is privatised, Labour will have to retreat from its promise to renationalise it as well if it wishes to have a slight chance of being elected again. The trouble is that Labour Members are half-converted. They are not fully converted to the post-Socialist society, but they should become full converts and follow the logic of their own doubts and quandaries.
My hon. Friend the Member for Stroud (Mr. Knapman) asked about the tax reliefs being made available for privatisations and new issues. I have already said that tax relief is being made available for all new issues. It is not necessary for us to give tax relief to make privatisation issues a success, as our record in getting issues away in the companies we have privatised demonstrates clearly. If Opposition Members believe that the privatisation of water depends on tax relief, that shows how little they have learnt. I have not the slightest doubt that there will be tremendous interest in the privatisation of water. Our changes will enlarge the scope of PEPs. They are designed not specifically for privatisation, but to improve the product of PEPs.
The Opposition have the wrong idea about PEPs and they have a wholly wrong idea about how valuable the tax relief is. Some of them have shown that they do not even understand how the tax relief works; they are under the impression that one receives tax relief simply for investing. That is not true; there is no subsidy for investing and no front-end relief—which is a criticism that some of my hon. Friends have made in the past. In the short term, there is no saving for investors; they have to obtain the dividends and capital gains first. One has to be a long-term investor to benefit from the tax reliefs. The idea that the tax relief on dividends—on £1,700—is absolutely to the rich shows that, despite all their efforts to catch up with the changes in the world and to change their policies, Labour Members are still miles and miles away from reality.
Personal equity plans are playing an important part in widening and deepening individual share ownership. I

believe that the changes that we have made will give them a tremendous boost, and I am utterly confident of their success.

Mr. A. J. Beith: The Minister will know that I have been a critic of the PEP scheme from the start—but entirely from the standpoint of someone who thinks that it is the basis of a very good idea and that its essential purpose is right. I would argue that the Minister is only half converted to the objective of wider share ownership or he would develop the PEP scheme further.
Two excellent objectives form the basis of the PEP scheme. The first—increasing saving—is of immediate economic importance. There are overriding reasons why we should seek to attract more saving at present. It is one of the instruments that we could put into the Chancellor's golf bag to add to his one-club interest rate policy.
The second purpose of the PEP scheme is not merely to deepen but to widen share ownership. Although the widening of share ownership made significant progress with the privatisation issues, it seems to have stopped at around the 20 per cent. mark and at a point where most of the new shareholders hold only one or two stocks. A real widening of share ownership would result in a large proportion of the population having a direct stake in the ownership of individual British companies and a direct involvement in their success. That objective is still to be attained, and I hope that the Minister will address himself to it.
PEPs have not gone far enough to help in meeting that objective, for two reasons. One reason is dealt with to a large extent in the present proposals—to date, the high management costs of the scheme have been a disincentive even to offering and marketing PEPs and must have played a part in the very low take-up rate in the past year. I welcome the improvements that the Government are making, which remove a whole lot of unnecessary limitations on the way in which a PEP scheme is operated.
The other main reason why the scheme is not fulfilling its purpose is that the reliefs available under it have been mainly advantageous to those who have sufficient capital gains tax opportunities to benefit from it—those who have exhausted their other sources of relief. It is not a real advantage to those who come nowhere near to using up their capital gains tax limit. No new investor is likely to need the extra capital gains tax relief. It is the investor who has used up his £5,000 worth of capital gains tax relief who is the primary beneficiary. Other investors have only the tax relief on their dividends which, in any stock market investment, must be only a small part of the investor's expectation of reward.
The Minister came right to the point when he said that he had been criticised—he has certainly been criticised by my party—for not considering the possibiity of a front-ended form of relief for the PEP scheme. The changes that the Government are making will lead to an increased take-up of PEPs—because of the reduction in management costs, the changes in the total investment limit and the time limit. The marketing of PEP mortgages will take off rapidly and they will be widely used by those who are aware of their tax advantages and likely to benefit from them. But the PEP scheme will still not be attracting the large numbers of people whom we want to induce to save and whom we want to own British industry. Although there are arguments in favour of the unit trust aspect of the proposal, that will also probably dilute the extent to which the scheme introduces people to ownership of shares in

individual companies. Therefore, we should examine the scheme again to see whether we can still fulfil that objective at the same time.
It remains my view that the most likely way of achieving that real widening is to offer a form of front-end relief as a supplement to the PEP scheme—perhaps a secondary scheme—a scheme alongside it, or an alternative scheme. Unless the Treasury does that, we will find from the PEP scheme, in the Chancellor's words, not a widening but a deepening of share ownership. That is a much more limited objective. The Minister should look at the original objectives.

Mr. John Redwood: Given the hon. Gentleman's party's conviction about wider share ownership, does he agree that privatisation has been the main means of widening share ownership in this country? Therefore, his party should accept that as the most likely way of continuing the share ownership revolution.

Mr. Beith: It is a means of widening share ownership, but it has fundamental disadvantages, one of which is that it has transferred monopolies from the public sector to the private sector without changing their monopolistic character. We had that experience with British Gas. We are experiencing it with the electricity industry—a badly conceived privatisation, the details of which it would he out of order for me to go into now.
There are good arguments for taking some industries out of the public sector, particularly if the income generated by doing so is reinvested in other parts of the economy. One of the Government's failings is that they see the gains from privatisation as something out of which to make a Budget surplus to be used on current expenditure, rather than as a means of reinvesting in the economy.
There is no gainsaying that one of the consequences of privatisation has been the widening of share ownership. It would be ridiculous to deny that. But I want to see it go much further. I want to see wider ownership of shares in British manufacturing industry, which has never been in public ownership and which therefore cannot be reached by that means.
The advantages of front-end tax reliefs are that they would prove a more immediate attraction to people who have not previously contemplated saving at all or putting their savings into industry. They would apply directly to those who have no prospect of using up capital gains tax relief and, therefore, do not regard that relief as a particularly important incentive.
If the Government are serious about widening share ownership to a larger number of people and also making it a means of increasing savings, they must change or extend the character of the PEP scheme. For those reasons, I am critical of some of the things that the Government have not done. My criticisms are not because of hostility to the scheme's objectives; in its modified form it can at least play some part.

Sir John Stanley: I welcome the Opposition's decision to initiate this debate, if only to demonstrate that the Labour party has not changed one whit, judging by the speech of the hon. Member for Islington, South and Finsbury (Mr. Smith) about privatisation issues. I found his remarks quite extraordinary. Just as members of the Labour party were


conspicuous in queueing up for the benefits of privatisation when council houses were offered for sale, so I have every confidence that they will queue up to take advantage of privatisation issues to put them into the PEP mark 2. They will be surprised if Opposition Members vote against the regulations.
I welcome the PEP mark 2. As my right hon. Friend was frank enough to admit, the PEP mark I did not completely fulfil our expectations. I recognise that the stock market crash in 1987 certainly was a factor in that, but it was not the only factor, and the PEP mark I was undoubtedly too complex and restrictive. There was too great an element of Inland Revenue nannying. Certainly, several fund managers—probably the great majority—found that it simply was not an economic proposition for them to run PEP schemes because of the administrative costs involved compared with the relatively small volume. PEP mark 2 is certainly an improvement.
I ask my right hon. Friend to consider two further changes that would remove two restrictions.
My right hon. Friend announced on 3 May in an answer to my hon. Friend the Member for Newbury (Mr. McNair-Wilson) that PEP mark 3 is around the corner, and he has confirmed that tonight. That being so, I hope that he will give consideration to the matters to which I wish to draw attention, especially the two that came within regulation 6(3—the 50 per cent. and 75 per cent. rules. The 50 per cent. rule prevents an individual investor from investing more than half of his annual PEP investment in investment trusts and unit trusts. The rule is unnecessary, anomalous and pretty undesirable. If it is possible for someone to put 100 per cent. of his annual investment into ordinary shares, why should he be restricted to only 50 per cent. of his investment for unit trusts and investment trusts?
My right hon. Friend has made some welcome changes for investment trusts and he has referred to the benefits of widening the changes to embrace split level trusts and the attraction of high-income trusts for first-time investors. If unit and investment trusts are a good investment medium for first-time investors, and they are, surely we should not place a 50 per cent. limit on that form of investment. I think that my right hon. Friend will be the first to agree that many first-time investors who go to their independent financial advisers with only £1,000 or £2,000 to invest will be advised by those advisers to put their money into investment trusts or unit trusts so that they may enjoy a reasonable spread of investment without incurring high initial purchase changes, which is the result of putting penny packets of investment into ordinary shares.
As the regulations are drafted, I believe that they will run contrary to the advice that independent financial advisers will give to those who come to them, especially if they are first-time investors or those of relatively modest means.
I ask my right hon. Friend to consider again the 75 per cent. rule. I suggest that it, too, is highly anomalous. As I understand it, the intention behind the regulations is to produce some form of direct imperative to invest in the United Kingdom. As my right hon. Friend knows, however, the ordinary shares that can be part of any PEP portfolio can include a huge range of United Kingdom-quoted companies. Many of those companies, not least oil

companies, natural resource companies and internatonal conglomerates, have the majority of their assets and earnings outside the United Kingdom. As the regulations are drafted, it would be possible to construct a PEP where the entire investment was placed in United Kingdom quoted companies which had 75 per cent. or more of their assets and earnings outside the United Kingdom. However, when one came to invest in a unit trust or investment trust that had 74 per cent. of its investments inside the United Kingdom, the regulations would debar the investment. I suggest that that is anomalous.
I have some sympathy with the argument advanced by the hon. Member for Berwick-upon-Tweed (Mr. Beith) in an intervention. As the Government have, rightly, been radical enough to abolish exchange controls, and as they are on the brink of entering into a single capital market within the European Community, fiscal nationalism on a pretty small issue seems to be rather unecessary. I hope that my right hon. Friend will examine closely the 75 per cent. rule. The PEP scheme will be much improved if that and the 50 per cent. restriction on unit trusts and investment trusts are abolished.

Mr. Denzil Davies: We are debating another example of what used to be called social engineering. Perhaps I should be sorry to revert to that phrase, but I see that the Financial Secretary is amused. Social engineering means the use of the tax system to further various political, economic and ideological ends for the purposes and aims of the Government of the day.
This is not a debate on the Finance Bill but it is closely allied to such legislation. Yesterday we debated the use of the tax system to encourage private health care and this afternoon we debated clause 44 of the Finance Bill and the use of the tax system both for the business expansion scheme and to try to encourage the provision of rented accommodation in the private sector. Again, the tax system is apparently to be used to iron out anomalies and to try to revive the private rented sector.
The tax system is now to be used to enable certain individuals to buy shares on the stock exchange and to get tax relief for doing so. Perhaps most Conservative Members were not Members of the House in those days, but some of us—[Interruption.] Of course it is tax relief—

Mrs. Edwina Currie: There is no tax relief for buying shares.

Mr. Davies: If one gets tax relief on dividends from the shares, one is paying no tax—[Interruption.] Well, perhaps it is not tax relief; it is tax exemption. I am sorry, I had better be more precise in my language. We are talking about total tax exemption on dividends on the PEP scheme. If the hon. Member for Derbyshire, South (Mrs. Currie) wants to be pedantic, she can be. The policy is to grant tax reliefs.
The Conservative party used to tell us that tax reliefs, tax incentives or tax breaks, as the Americans call them, were justified only because of the high rates of taxation under Labour Governments. The Conservative party said that they were justified then because they ameliorated the harsh tax rates. We can all remember that what used to be called "unearned income" was taxed at 95 or 97 per cent. when the investment income surcharge was applied to it


—[Interruption]. I am advised that the rate was 98 per cent. It was argued that because of those rates we must have all these reliefs. However, we were told that once the tax rates came down to reasonable levels there would be no need for the reliefs. We were told that everything would be neutral and that incentives would not be given to either one group or another.
We have had those tax reductions. Unearned income became known as investment income and the tax on it was no longer any different from the tax on earnings. That is the position today, except that the top tax rate has gone down to 40 per cent. Yet we apparently still need the reliefs and the incentives. Indeed, under this scheme there is no tax at all on dividends—I am correct in that, am I not? —yet there are taxes on earnings at 25 and 40 per cent. We are moving in the opposite direction—we are taxing unearned income in certain categories at a level lower than that at which we tax earnings.
That is extraordinary coming from the Conservative party which has preached tax and fiscal neutrality. However, we know what this is really all about. Although a few people at the lower end of the scale will benefit from such schemes, the schemes will most benefit those whom the Prime Minister describes as "our own people". I notice that the hon. Member for Derbyshire, South is agreeing with that.
As I have said, no tax will be paid on dividends and no tax will be paid on capital gains. The Financial Secretary told us that that is to encourage savings. I thought that the function of the interest rate system was to encourage savings. I should have thought that interest rates at twice the rate of inflation and the highest in Europe—it is possible to get 13 per cent. today—would encourage savings. I do not see why it is necessary to try to get more. Why be more greedy? Why try to find more tax reliefs and more income from savings?
The scheme is, in fact, a confession that popular capitalism has failed to deliver savings. Popular capitalism —the free market, and no interference in the market whatsoever—has not delivered savings under this Government; it has delivered spend, spend, spend. That means that we now have to use the tax system and to pay money to institutional managers and to the fund managers in the City to try to ameliorate the failure of popular capitalism to encourage saving.
The right hon. Member for Tonbridge and Mailing (Sir J. Stanley) talked about the "nannying" of the Inland Revenue. There are 13 pages in these regulations which I read through earlier. They talk of plans, plan managers, plan investments, qualifying individuals, plans managed in accordance with the regulations, planned investors. There are 13 pages of gobbledegook from the Government who told us that the tax system would be simplified, not complicated. We are also debating this week the longest Finance Bill in history.
The Government talked about fiscal neutrality and tax simplicity, but we received neither. A Government who were, apparently, in favour of fiscal neutrality and tax simplicity, have given us less of both. The main reason for that is that the Government want to assist those they choose to help, and they will try to do so through the tax system.
I do not know whether the Government's policy will encourage savings. It will shift savings from one sector of the economy to another. I doubt whether it will generate extra savings, because that depends on the general

economy. Savings cannot be created overnight. As a result of this system, money will leave building societies and go into the new PEP scheme. I doubt whether it will encourage savings, but it will assist a number of people.
The reason for the scheme and for the Financial Secretary talking about savings is that, over the past few years, the Government have run a slack monetary and fiscal policy. If the Government had practised what they preached about monetary discipline, there would be no need for these schemes to try to encourage savings, because the economy would not be run on that basis. The scheme is a consequence of the Government's failure properly to manage their economy and of the Conservative party's desire to use the tax system to assist its own people. Conservative Members who troop into the Lobby tonight to support the regulations will do so because there is money in it for their own people.

Mrs. Edwina Currie: May I say how much Conservative Members welcome the various improvements to the PEP.
I originally intended to come merely to listen to the debate, but I heard so much guff from the hon. Member for Islington, South and Finsbury (Mr. Smith) and more guff from the hon. Member for Berwick-upon-Tweed (Mr. Beith), and then I heard my right hon. Friend the Financial Secretary speaking with such approbation about the unskilled women of the north of England who are now buying PEPs in such numbers. When I heard this I thought to myself, "My right hon. Friend is talking about me " I am an unskilled woman from the north of England arid I have never owned any shares in my life, and on 30 March this year I marched into Lloyds bank in Victoria street and bought a PEP.
I think that PEPs are wonderful, and I would like my right hon. Friend to know that he is absolutely right in what he says about the attractiveness of the PEP scheme to first-time buyers and investors, the person who knows nothing about the stock exchange, does not have a financial adviser, does not read the Financial Times, but wants to get into the stock exchange and the stock market to benefit from the tremendous improvement in the capitalist society over which the Government have presided.
In future, this will be the real value of the PEP. It will be one of the best ways into the system for the first-time buyer. On that basis, the changes that are being prayed against today are very important, much more important than the tax incentives that have been described and which are being derided by the Opposition. They are particularly important as privatisation issues gradually draw to a close. We shall reach the stage when we have privatised everything that stays still long enough. It will then be harder for the public, unless they have some easy access to the system, to buy shares. In any case, why should they be restricted to buying shares merely in old, nationalised industries? It is marvellous that, through the PEP system, they should be able to have access to shares in a much wider range of companies.
I share the view of my right hon. Friend the Member for Tonbridge and Mailing (Sir J. Stanley) that the old PEP rule on the proportion that goes into unit trusts is a


bureaucratic and undesirable element of restriction that my right hon. Friend the Financial Secretary should look at.
The old PEP was hampered by excessive bureaucracy and, perhaps, a half-hearted approach. Listening to the Opposition Members who have spoken, I wondered why they oppose the PEPs and have bothered with this prayer. They are wrong about them on one count—no doubt my right hon. Friend will tell them they are wrong on many others, too. They are wrong to think that PEPs are attractive only to people who have used up their existing £5,000 tax exemption on the capital gains tax. The person buying a PEP for the first time who does not own shares has a tremendous incentive to buy one the next year—and the next—and to stay in the system until he accumulates a substantial benefit. That is a major incentive.
My right hon. Friend was undoubtedly right to say that the average tax benefit from the dividends will be about £60 a year. I agree that that is not exactly exciting for most people, including those on average earnings or below. But that is not the incentive; the incentive is to get into the stock exchange system and stay there until the day comes when a person has built up a large portfolio.
The hon. Member for Islington, South and Finsbury (Mr. Smith) must make up his mind. Perhaps the Labour party's policy review will help him to do so. Everything that he said about PEPs amounted to an advertisement for them and I should have thought that he would welcome them for that reason. The Opposition say that they believe in a share-owning democracy; if so, they should consider PEPs, and the changes to them, marvellous. Either they should make up their minds whether they favour share-owning, or they know what they really think about it and are not telling us, in which case they are lying through their teeth—[Interruption.] I said, "Either, or."
I must tell the hon. Member for Islington, South and Finsbury, who is a nice bloke—I like him—[Interruption.] that when it comes to the next election, and the hon. Gentleman and his hon. Friends start talking about share ownership and a share-owning democracy, he will have to make it absolutely clear whether he means to leave our shares with us or to take them off us by re-nationalisation and taking away all the rights that we are now acquiring. If he chooses the latter course, he will find it about as popular as taking away our nuclear deterrent, and the people will not vote for it.
I offer my right hon. Friend this thought: we have spent a lot of time considering incentives to the purchasers of PEPs, but we need to think about incentives for the banks, building societies and others who will take on the management of these funds on our behalf. I had to persuade the nice young ladies at the branch of Lloyds in Victoria street to sell me a PEP. They had never heard of it. Having heard my right hon. Friend's Budget speech, I decided that a PEP would be nice to have. A few days later Lloyds took full-page advertisements in the press, telling us that we must buy our PEPs immediately and sign our cheques by 4 pm on the last Friday in March. If not, we could not obtain the current plant.
I marched in, clutching my copy of the advertisement in one hand and cheque book in the other. No one at the branch of Lloyds knew anything about PEPs. They managed to find me a leaflet, and I read through the details

of the old scheme, which were all wrong. I told the staff that everything had changed; they said that it had not. The young lady brought her supervisor to see me—also, marvellous to relate, a woman—and she insisted also that the details had not changed. I said to the girl, "Here's my cheque. I want a receipt now, with the date-stamp on it." Three weeks later I received a stereotyped letter from a minion in Lloyds bank stating that I now possessed a PEP.
I have done the bank the honour of giving it my hard-earned £3,000, and I reckon that it should be keener to take our money off us. Somewhere along the line, if the PEP is to be what I hope—the easy way into the stock exchange for the first-time buyer and for people who have no experience of the stock exchange—the people who are managing and selling the schemes had better pull their socks up and do the selling. They should make it easier and more attractive for unskilled northern women like me to go into the banks and get PEPs.
I commend what my right hon. Friend is doing. I look forward to the PEP being an even greater success in future.

Mr. Tim Smith: When my hon. Friend the Member for Derbyshire, South (Mrs. Currie) approached the sign of the black horse and got into the bank, she discovered that it was the listening bank and she was able to advise it on PEPs. I hope that it gets its act together soon.
The changes announced in the Budget offer an outstanding marketing opportunity for financial advisers of all kinds. When I listened to the Budget statement I concluded that this was one of the most exciting series of changes made for a long time. The changes in personal equity plans offer people for the first time a real opportunity to build up a tax-free equity portfolio.
The right hon. Member for Llanelli (Mr. Davies) talked about encouraging savings. I do not believe that that is the object of the scheme. It is to encourage investment in equities, which is a different proposition. There is plenty of encouragement for savings with interest rates at their present levels. Building societies do not have a problem, and savings are rising.
The purpose of the scheme is to encourage people to put their money into direct savings in equities, investment trusts and unit trusts. We can make a direct comparison between the tax advantages of putting money into an occupational pension scheme, where it is locked up for a long time but where all the dividends and capital gains are tax-free, and personal equity plans.
I agree with the hon. Member for Berwick-upon-Tweed (Mr. Beith) that there will be a big change in this area of the savings market. When people take out a mortgage, they will not go for an institutional way of paying it back through a life policy where the money is locked up. They will put their money into personal equity plans on a regular basis. Over a period of years, as anyone who looks at the tables for unit trusts will see, there will be a rapid accumulation in the value of their investment. They will find that they are in a position to pay off their mortgage much earlier than they might otherwise have been. They will have considerable flexibility which is not available under present arrangements.
That is why the scheme is so exciting. It is not for a month, for six months or even for a year, as the hon. Member for Islington, South and Finsbury (Mr. Smith)


thinks; it is for a long period to encourage long-term savings in the equity market. That is what it will do. With modest monthly payments, people can accumulate considerable capital. It is the next step to a property-owning democracy. The Government have been successful in achieving a high percentage of home ownership. The next stage in giving people more security and independence is to give them the opportunity to build up a reasonable amount of equity capital.
I welcome the changes, which will be significant in the long run. Opposition Members do not know how to react to all this, or whether to welcome it. We saw that in the speech of the hon. Member for Islington, South and Finsbury from the Front Bench. I think that they will see that there will be considerable benefits and that many new investors will come into this area of the savings market.
I have two detailed comments. First, on the vexed question of the 75 per cent. limit which will apply to unit trusts and investment trusts, I understand why the Treasury wants to introduce a limit. It is right that, primarily, people should be encouraged to invest in United Kingdom equities, but there is the difficulty to which my right hon. Friend the Member for Tonbridge and Mailing (Sir J. Stanley) drew attention—that many United Kingdom companies invest heavily overseas. For example, Hanson plc has about 50 per cent. investment in the United Kingdom and 50 per cent. in the United States. If I chose to invest all my PEP in Hanson shares, I would get full relief even though half the money is going to overseas investment. We can probably think of examples, such as BAT Industries plc, where the proportion of overseas investment is even higher. I could invest in plantation or other companies, where investment is completely overseas. My right hon. Friend might review the limit. A 50 per cent. limit might be more reasonable.
On my second point I am not too sure of my facts, but I want to ask whether, under the scheme, one is confined to investing in quoted shares. If so, is there any reason why the scheme should not be extended to unquoted shares? Is there any reason why all equity investment should not be eligible? 1 shall be grateful for an answer to that question. It may not be unreasonable to allow people to invest in unquoted investment, more risky though that may be.
At the end of the day, the changes encourage more people to put more of their money into equity investment. The Government have been successful in increasing share ownership. Literally millions of people are now investors, and with these changes, encouraging people to put their privatisation shares into the schemes, we shall see PEPs take off over the next 12 or 24 months.

Mr. Chris Smith: The hon. Member for Derbyshire, South (Mrs. Currie) has obviously spotted the fact that my reselection comes later this year and has decided to do me the greatest possible damage by being nice about me. However, I am grateful for her comments, if not for the general content of what she had to say about PEPs.
The hon. Member for Beaconsfield (Mr. Smith) said that there was plenty of encouragement for savings at the moment through the movement in interest rates. That is broadly true, but it is worth noting in passing that the rates generally available for savers through financial institutions such as building societies have gone up proportionately less than the rates that are charged to borrowers as a result

of the increase in the base rate. There are important questions to be asked about where the difference between those two movements in rates has gone, but that is for another debate.
Two points that arose in this debate are worth highlighting. First, there appears to be a clash of opinion between the two sides of the Chamber about the overall profile of investors in PEPs. Opposition Members have the evidence from financial journalists, from the Institute of Fiscal Studies and from the general feeling among the financial institutions in the PEP market, the overwhelming impression from which is that relatively few first-time investors are now taking advantage of PEPs, that on the whole PEPs are taken out by richer investors and that much PEP investment is the repackaging of existing portfolios.
From Conversative Members we have the impressions of one branch of the Bradford and Bingley building society; or perhaps one region of it. I would tend to believe the Institute of Fiscal Studies and other financial institutions before I believe the impression that the Financial Secretary was trying to give.
The other point that is worth re-emphasising is a simple point of principle. For all the talk of popular capitalism, ownership and so on that we have had from Conservative Members tonight, the fact remains that the inclusion of privatised issues within PEPs in effect gives a tax relief which is ultimately expenditure by the Exchequer, because it is income forgone. It is giving Exchequer subsidies to those who purchase public assets.
Bitterly opposed as Labour Members are to the sale of those public assets, we cannot possibly accept that it is right, on top of the disposal of those public assets, to assist their disposal by means of a tax subsidy—expenditure from the Exchequer, which is paid for by the generality of taxpayers.

Mr. Norman Lamont: My right hon. Friend the Member for Tonbridge and Malling (Sir J. Stanley) raised two points. The first was about what he called the 50 per cent. rule. There is not actually a 50 per cent. rule. Somebody investing in unit trusts or investment trusts can invest all his portfolio in unit or investment trusts.
I think that my right hon. Friend was referring to the fact that the £2,400 is half the limit. Regulation 6(3) is concerned only with somebody who has first invested in shares and then wants to switch to unit trusts. There is also the point, which my right hon. Friend may have been making, that £2,400 is half the limit that may be invested in shares directly.
As I explained at the beginning of the debate, our original concept was designed to encourage direct ownership in individual shares, although we also allowed some investment in unit and investment trusts. We have increased that considerably, to a level that is more economic from the point of view of plan managers, but we still want to maintain the idea of direct investment in individual shares with the investor actually following the company. So we are trying to do both—to have a generous amount for unit and investment trusts and a higher amount for direct investment.
My right hon. Friend the Member for Tonbridge and Malling also referred to the 75 per cent. rule, as did my hon. Friend the Member for Beaconsfield (Mr. Smith).


The point was made—which, after many representations from the unit and investment trusts, has become a familiar one—that there are many British companies with assets throughout the world and that there is a degree of artificiality at the margin in saying that a company which is quoted and registered in London is necessarily a United Kingdom company, even if its activities are spread internationally.
Most hon. Members will agree that it would be odd if we gave a tax relief for people to invest largely overseas. It is difficult to distinguish one company from another and try to look at the underlying assets, whereas with a collective investment vehicle one can do that easily. But it would be odd to give tax relief for, say, M & G Japan.

Sir John Stanley: Will my right hon. Friend explain how it is meant to work in a situation where an individual plan holder invests in an investment trust that is just more than 75 per cent. invested in the United Kingdom? The board of directors of the investment trust is bound by the Companies Act to do its best by its shareholders. Let us assume that it is an international investment trust and it decides that it should switch a proportion of its investments out of the United Kingdom into companies overseas, and it falls below the 75 per cent. level. The plan holders will no longer be in a qualifying investment trust. What will happen to such plan holders?

Mr. Lamont: For an investment trust to qualify to be part of a PEP, it must satisfy the 75 per cent. requirement, and it will be able to be in a plan only if that is one of its investment objectives. The directors of the company will know that when they decide whether they wish to put their investment trust into a PEP.
My hon. Friend the Member for Beaconsfield asked whether PEPs are confined to quoted shares. They are, but my hon. Friend may have noticed that we extended that provision to include the USM as well. We regard the BES as being more suited to encouraging investment in unquoted shares.
The right hon. Member for Llanelli (Mr. Davies) made another engaging speech. He has become the spokesman and interpreter of the new Right on the Opposition Benches. After the Budget, the right hon. Gentleman gave the House a lecture on monetarism, saying that if we were true believers in monetarism we would not have been worried about the surplus but would have cut taxes and let monetary policy take the strain. The right hon. Gentleman has also been lecturing on fiscal neutrality, and has been reading publications by Milton Friedman and the Adam Smith Institute well into the night.
The right hon. Gentleman has become very learned on Right-wing theory. However, as my hon. Friend the Member for Derbyshire, South (Mrs. Currie) pointed out, despite all the right hon. Gentleman's education from the Right and the new Right, he does not understand how PEP tax relief works. My hon. Friend the Member for Derbyshire, South made it clear that one does not benefit from tax relief just by the act of investing. She emphasised, as did my hon. Friend the Member for Beaconsfield, that the advantage of PEP tax relief comes only to the person who invests consistently and holds shares for a period of time.
The right hon. Member for Llanelli stated that the regulations, the changes and the whole concept of PEPs simply complicate the tax system. Perhaps stemming from his misunderstanding of the relief, the right hon. Gentleman overlooks the fact that, because there is total exemption on dividends, one of the beauties of the system, and one of its greatest attractions, is that the investor does not need to have any contact with the Inland Revenue. That is a major advantage, and very different from the scheme proposed by the hon. Member for Berwick-upon-Tweed (Mr. Beith), who yet again suggested tax subsidy for investment; front-end relief on the Loi Monory model.
That would help the richer investor and be open to abuse on a considerable scale, because it would be possible for a person to recycle his investments each year, thus qualifying for relief. They would be able to put existing investments through a plan and qualify for relief just on the basis of their existing investments. That would be much more expensive than the existing form of relief, which is well targeted.
My hon. Friends the Members for Derbyshire, South and for Beaconsfield made the point that the strength of the scheme is that it rewards the long-term investor who sticks with his or her portfolio, and not—as Opposition Members seem to think—short-term speculators. The plan encourages investment in equity markets and encourages people to stay in them for the long term. That is its purpose, and our Budget changes strengthen the scheme and will prove to be very popular.

Question put:

The House divided: Ayes 88, Noes 165.

Division No 195]
[11.43pm


AYES


Abbott, Ms Diane
Hughes, Robert (Aberdeen N)


Adams, Allen (Paisley N)
Illsley, Eric


Barnes, Harry (Derbyshire NE)
Ingram, Adam


Battle, John
Jones, Barry (Alyn &amp; Deeside)


Beckett, Margaret
Jones, Martyn (Clwyd S W)


Boateng, Paul
Kinnock, Rt Hon Neil


Bradley, Keith
Lamond, James


Brown, Gordon (D'mline E)
Lewis, Terry


Brown, Nicholas (Newcastle E)
Lofthouse, Geoffrey


Buckley, George J.
Loyden, Eddie


Campbell-Savours, D. N.
McAllion, John


Clark, Dr David (S Shields)
McAvoy, Thomas


Clarke, Tom (Monklands W)
McFall, John


Clay, Bob
McKay, Allen (Barnsley West)


Clelland, David
McNamara, Kevin


Clwyd, Mrs Ann
Mahon, Mrs Alice


Cook, Robin (Livingston)
Marek, Dr John


Cousins, Jim
Marshall, Jim (Leicester S)


Cryer, Bob
Martin, Michael J. (Springburn)


Cunliffe, Lawrence
Meale, Alan


Darling, Alistair
Michael, Alun


Davies, Rt Hon Denzil (Llanelli)
Michie, Bill (Sheffield Heeley)


Davis, Terry (B'ham Hodge H'I)
Moonie, Dr Lewis


Dixon, Don
Morgan, Rhodri


Dunnachie, Jimmy
Mullin, Chris


Ewing, Mrs Margaret (Moray)
Orme, Rt Hon Stanley


Fisher, Mark
Pike, Peter L.


Foster, Derek
Powell, Ray (Ogmore)


Foulkes, George
Quin, Ms Joyce


Fyfe, Maria
Redmond, Martin


Godman, Dr Norman A.
Robertson, George


Golding, Mrs Llin
Ross, Ernie (Dundee W)


Gordon, Mildred
Rowlands, Ted


Graham, Thomas
Ruddock, Joan


Griffiths, Win (Bridgend)
Skinner, Dennis


Henderson, Doug
Smith, C. (Isl'ton &amp; F'bury)


Hinchliffe, David
Smith, John P. (Vale of Glam)


Home Robertson, John
Soley, Clive


Hughes, John (Coventry NE)
Spearing, Nigel






Steinberg, Gerry
Welsh, Michael (Doncaster N)


Turner, Dennis
Worthington, Tony


Vaz, Keith
Wray, Jimmy


Wall, Pat



Walley, Joan
Tellers for the Ayes:


Warded, Gareth (Gower)
Mr. Robert N. Wareing and


Welsh, Andrew (Angus E)
Mr. Ken Eastham.


NOES


Aitken, Jonathan
Devlin, Tim


Alexander, Richard
Dorrell, Stephen


Alison, Rt Hon Michael
Dover, Den


Amess, David
Dunn, Bob


Amos, Alan
Durant, Tony


Arbuthnot, James
Evans, David (Welwyn Hatf'd)


Arnold, Tom (Hazel Grove)
Fallon, Michael


Ashby, David
Favell, Tony


Baker, Nicholas (Dorset N)
Fishburn, John Dudley


Batiste, Spencer
Forman, Nigel


Beith, A. J.
Forth, Eric


Bennett, Nicholas (Pembroke)
Fox, Sir Marcus


Biffen, Rt Hon John
Franks, Cecil


Blackburn, Dr John G.
Freeman, Roger


Bonsor, Sir Nicholas
French, Douglas


Boscawen, Hon Robert
Gardiner, George


Boswell, Tim
Garel-Jones, Tristan


Bottomley, Peter
Gill, Christopher


Bottomley, Mrs Virginia
Goodhart, Sir Philip


Bowis, John
Greenway, John (Ryedale)


Brandon-Bravo, Martin
Gregory, Conal


Brazier, Julian
Griffiths, Peter (Portsmouth N)


Brown, Michael (Brigg &amp; Cl't's)
Grist, Ian


Burns, Simon
Ground, Patrick


Burt, Alistair
Gummer, Rt Hon John Selwyn


Butterfill, John
Hague, William


Campbell, Menzies (Fife NE)
Hamilton, Hon Archie (Epsom)


Carlile, Alex (Mont'g)
Hamilton, Neil (Tatton)


Carrington, Matthew
Hargreaves, A. (B'ham H'll Gr')


Chapman, Sydney
Harris, David


Chope, Christopher
Hayes, Jerry


Clarke, Rt Hon K. (Rushcliffe)
Heathcoat-Amory, David


Coombs, Anthony (Wyre F'rest)
Hind, Kenneth


Coombs, Simon (Swindon)
Howard, Michael


Cope, Rt Hon John
Howell, Rt Hon David (G'dford)


Couchman, James
Hughes, Robert G. (Harrow W)


Cran, James
Hughes, Simon (Southwark)


Currie, Mrs Edwina
Hunt, David (Wirral W)


Davis, David (Boothferry)
Hunter, Andrew





Irvine, Michael
Raison, Rt Hon Timothy


Jack, Michael
Redwood, John


Janman, Tim
Rhodes James, Robert


Jones, Gwilym (Cardiff N)
Riddick, Graham


Jones, Robert B (Herts W)
Ridley, Rt Hon Nicholas


Kennedy, Charles
Ridsdale, Sir Julian


Kilfedder, James
Roberts, Wyn (Conwy)


King, Roger (B'ham N'thfield)
Rost, Peter


Kirkhope, Timothy
Rumbold, Mrs Angela


Knapman, Roger
Ryder, Richard


Knight, Greg (Derby North)
Sackville, Hon Tom


Knowles, Michael
Sainsbury, Hon Tim


Lamont, Rt Hon Norman
Sayeed, Jonathan


Latham, Michael
Shaw, David (Dover)


Lawson, Rt Hon Nigel
Shephard, Mrs G. (Norfolk SW)


Lennox-Boyd, Hon Mark
Shepherd, Colin (Hereford)


Lester, Jim (Broxtowe)
Skeet, Sir Trevor


Lightbown, David
Smith, Tim (Beaconsfield)


Lilley, Peter
Speller, Tony


Livsey, Richard
Spicer, Michael (S Worcs)


Lloyd, Peter (Fareham)
Stanley, Rt Hon Sir John


Lyell, Sir Nicholas
Steen, Anthony


McCrindle, Robert
Stevens, Lewis


MacGregor, Rt Hon John
Stewart, Andy (Sherwood)


Maclean, David
Stradling Thomas, Sir John


McLoughlin, Patrick
Summerson, Hugo


McNair-Wilson, Sir Michael
Taylor, Ian (Esher)


McNair-Wilson, P. (New Forest)
Taylor, John M (Solihull)


Malins, Humfrey
Thompson, D. (Calder Vally)


Mans, Keith
Thorne, Neil


Martin, David (Portsmouth S)
Thurnham, Peter


Mates, Michael
Townend, John (Bridlington)


Miller, Sir Hal
Trippier, David


Mills, Iain
Trotter, Neville


Mitchell, Andrew (Gedling)
Waddington, Rt Hon Davic


Mitchell, Sir David
Wheeler, John


Montgomery, Sir Fergus
Whitney, Ray


Morrison, Sir Charles
Widdecombe, Ann


Neale, Gerrard
Wolfson, Mark


Neubert, Michael
Wood, Timothy


Nicholson, David (Taunton)
Yeo, Tim


Onslow, Rt Hon Cranley



Paice, James
Tellers for the Noes:


Pattie, Rt Hon Sir Geoffrey
Mr. Alan Howarth and


Porter, David (Waveney)
Mr. Kenneth Carlisle.


Powell, William (Corby)

Question accordingly negatived.

Metropolitan Trust Estate, Hemel Hempstead

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Sakville]

Mr. Robert B. Jones: I welcome the opportunity to introduce this short debate on the supervision of housing associations and the importance of ensuring that bodies entrusted with public money are well run and considerate to their tenants.
Housing associations are like local authorities; some are good—I have been involved with some in my constituency, the performance of which is excellent—and some are bad. The debate is about the performance of one housing association—the Metropolitan housing trust, which is known to me because of its ownership of a small estate in my constituency, Woodhall farm, Hemel Hempstead. The history of the estate is substandard building, negligent maintenance, botched workmanship and complete contempt by the trust for the views and conditions of my constituents who have the misfortune to be its tenants.
I have been dealing with tenants' problems since I was elected in June 1983, often with a bewildering succession of officials and at least two chairmen. Correspondence has been protracted and fills half a drawer of my filing system. I have had numerous meetings with representatives of the trust, individual tenants and their leaders and the local authority. On one occasion, I chaired a public meeting of the tenants, at which trust representatives were present. I am sorry to say that all this effort appears to have made little difference to the trust's attitude. My last resort, therefore, is to place the facts in the public domain and rely on the reputation of my hon. Friend the Minister for concern about the problems of public sector tenants, when their landlords are indifferent to their plight.
The estate at Woodhall farm was built by Fairview Estates in the late 1970s as a speculative development. The majority of the housing there is owner-occupied, but certain areas were acquired by outside public bodies. Those formerly owned by the Greater London council are now in the hands of Dacorum borough council, although many have now been bought under the right to buy. This debate is about the smallest group—those acquired by the Metropolitan housing trust, a charitable housing association set up and funded by the Labour-controlled London borough of Haringey.
The Metropolitan housing trust owns 117 three and four-bedroom houses, which are occupied primarily by families originating from north London. In fairness to it, it must be said that there is substantial circumstantial evidence that the housing was substandard at purchase. Tacit recognition of this is evident from Fairview Estates' agreement to carry out certain remedial works and the company's financial compensation paid to another housing association on the estate, the Circle 33 housing trust, despite the passage of 10 years since construction. It must, nevertheless, be obvious that the trust did not take the prudent steps necessary to know what problems might lie ahead. The elementary piece of advice, caveat emptor, seems not to have been followed.
Residents have watched the steady decline of the condition of their homes in contrast to the generally

well-maintained and managed local authority and owner-occupied parts of the estate. Although all the properties were built to the same specification, there is a clear difference between their condition now. The initial poor workmanship has therefore been exacerbated by the Metropolian housing trust's failure to carry out effective repairs over the past 10 years.
Most obvious of the defects in maintenance is the condition of the paintwork, which is a disgrace. A casual visitor to the estate would be struck forcibly by the peeling paintwork and rotten woodwork. No effective painting cycle has ever been in effect. As a result, comparatively trivial maintenance problems have deteriorated through inattention. I will give one example of what I mean. My constituent, Mrs. A, had occasion to report three years ago that part of her door frame was rotten. Without attention in the meantime, it has now become necessary to replace the entire porch.
There are many other such problems, and during the past few years I have taken officials and members of the trust on inspection tours. All of them have been shocked by what they have seen. I should not want my hon. Friend the Minister to think that this was a problem that only a lick of paint could cure. My constituent Mr. L has had to put up with his garden wall collapsing on to a parked van. Even after part of the wall was demolished and rebuilt at the instigation of the trust, Dacorum borough council's chief planning officer had to write in March 1988 in these terms:
The defects referred to have not been rectified by the works and are likely to constitute a danger to the public in the near future under the provisions of the Building Act 1984".
Yet another botched job! Simple repairs have taken three to five years. Kitchen cupboards have crashed to the floor having been fixed to the wall by four floorboard nails instead of screws. Typical of the trust's approach, even now, is the repainting of a rotten frame by one workman, followed a few weeks later by a carpenter who has cut out the rotten wood, leaving the new wood unpainted. No doubt that will be rotten by the time it is painted again.
My constituents are reasonable people driven to the point of despair. One of them, Mr. Fred Rantle, has led an excellent campaign to get the Metropolitan housing trust to face up to its responsibilities and to provide an acceptable repair service. He is now chairman of the residents' group and has been helping other tenants with advice. I would like especially to thank him for his work and encouragement.
The trust itself recognises the repair backlog. It commissioned a professional survey between April and June 1986, which concluded that £500,000 needed to be spent. That amount must be higher now because of the passage of time. As a result of this survey by the trust, the officers of the trust reported to its members in October 1986:
Members have been aware for a considerable length of time of significant defects to the dwellings at the above estate. These defects, due to their severity, have never been able to be handled in a comprehensive manner.
We then come down to the basic problem of money. The trust itself is in deficit by a reputed £500,000. No doubt that is due to mismanagement, as always. It has, therefore, three basic options. First, it approached the London borough of Haringey, which predictably shirked its responsibilities. I feel, as do my constituents, that this attitude owes much to the fact that they have no votes in Haringey and can therefore safely be treated with


contempt. That failure by Haringey was confirmed by the trust's director in a letter to me dated 21 June 1988, in which he said:
First of all it has become clear that the London Borough of Haringey have no intention or capability of providing major repairs funding for the estate at the moment.
The second option to be examined was to ask the Housing Corporation for more money. That is quite unacceptable as the taxpayer has already paid for the houses and is entitled to expect them to be properly maintained. I believe that the trust has had a dusty answer from the Housing Corporation. The third option—the only practicable one—is for the trust to raise the money from sales of its property, which is what it is now doing. That brings me to a parallel, but related, bone of contention between the tenants and the trust.
Since moving to Hemel Hempstead, many of the tenants have prospered. They see around them council tenants who have become owner-occupiers and, quite naturally and justifiably, they themselves have aspirations to see their hard work rewarded by similar status. On behalf of a number of families, I have repeatedly pressed the trust to allow tenants to purchase. Predictably, the trust's members, who I believe are all owner-occupiers themselves, have denied that opportunity to their fellow citizens.
Given the financial circumstances, however, needs have triumphed over ideology and the need to raise £500,000 has moved minds. But that is the only silver lining in a very clouded sky and even that silver lining is tarnished. First, the discounts being allowed are mean in the extreme and are far inferior to those operating under the right to buy. It is grossly unfair to see similarly placed tenants in identical houses, funded entirely by public money, being faced with wholly different prices for a home of their own, depending on whether they are a council or housing association tenant. Much of that unfairness was discussed at length together with the repair problem, at a meeting for all tenants which I chaired in November 1987. It was attended by nearly every tenant and voted unanimously to request the same terms as those operating under the right to buy. Needless to say, the tenants' views were wholly ignored by the trust.
The trust went ahead with its own terms and circulated tenants in December 1987. The reaction was clear. Of the 30 families expressing an interest in purchase, only a handful could accept the terms. Some of these have now completed, but several other injustices have surfaced. One family which was originally unable to buy has since benefited from improved financial circumstances. With my support, it approached the trust to be reconsidered. The door was slammed in its face.
There is a sting in the tail, which will really shock my hon. Friend, if he has not already been disgusted enough by the trust's behaviour. The Metropolitan housing trust, a bastion of Stalinism to the end, has included a strict covenant in the contract imposing conditions on the new owners right down to the paint that they can use—a supreme irony in view of the trust's paint-free history. The conveyance also stipulates that purchasers should submit to the Metropolitan housing trust, with a fee, any request for alterations and extensions, despite the fact that these matters are properly dealt with under planning law. The ex-Metropolitan tenant will thus be left a semi-serf in his own home.
I am afraid that I have one more major complaint. Recently, tenants denied the opportunity to buy have been angered to see vacant houses on the estate sold on the open market. Perfect strangers can buy the association's houses, whereas long-standing tenants cannot. I am also told that the restrictive covenants do not apply to those sales, although I have been unable to confirm that point.
The evidence is damning in the extreme. In my view, the Housing Corporation should hold a full inquiry into the management of the Metropolitan housing trust and its finances. It should visit the estate and meet the tenants, who can add volumes of damning evidence. I have a petition signed by virtually every tenant, except those who were not in on three separate visits. The petition calls for a public inquiry—a call that I support. I would add a request that my hon. Friend looks closely at the principle of whether a housing body funded by a local authority should be allowed to own property beyond its own boundaries.
In its own conditions of tenancy the trust undertakes to obey these two conditions, among others:
C. 1a) The Trust shall be responsible for all repairs and redecorations to the exterior of the premises
b) The Trust shall be responsible for the repair and maintenance of the structure of the premises.
In view of its abject failure to fulfil those conditions, I believe that the Housing Corporation should order the trust to be wound up and its assets transferred to another body that is more competent and considerate of its tenants.
Finally, I place on record my appreciation to the two Conservative councillors for this ward, Mike Griffiths and Denis Samuels, who have consistently supported the tenants' case, and, above all, to the tenants themselves, who have been prepared to fight for their rights.
In another debate on another subject, I might have used the phrase "battering one's head against a brick wall." In the context of the trust's shoddy masonry, I shall simply invite the Minister to give its tottering establishment one last shove.

The Parliamentary Under-Secretary of State for the Environment (Mr. David Trippier): I congratulate my hon. Friend the Member for Hertfordshire, West (Mr. Jones) on securing the debate. My hon. Friend has in his constituency many properties run by housing associations in a very proper manner and I am grateful to him for his kind remarks about those associations.
Naturally, I am sorry to hear that my hon. Friend thinks that the attitude of one association towards its tenants lacks the care that is traditional. I am sure that we all suffer from day-to-day worries about repairs to our homes but perhaps in this case there are more serious problems attributable to the original construction which are a worry to Metropolitan's management as well as to its tenants.
Having promoted housing associations, the Government want to be confident that they will continue in their tradition of being responsible landlords. Through its normal monitoring and reporting system, the Housing Corporation is prepared to get to grips with a registered association that is demonstrably remiss. It is aware of the problems at the Woodhall estate, and in view of the


concern that my hon. Friend has clearly expressed this evening, I shall ensure that the Housing Corporation makes proper inquiries.
My hon. Friend raised a specific point about ownership. We have always been cautious about interfering with the acquisition and disposal of housing association stock. The right to buy is deservedly popular with council tenants who wish to progress to home ownership.
I can understand why the home ownership scheme for tenants of charitable housing associations is close to my hon. Friend's heart. At this stage, he would not expect me to pass judgment on why one association has acted in a particular way on a particular estate. For all I know, its committee may be pressed by circumstances to take a line that is unpopular with several tenants to safeguard the interests of most. Again, in view of my hon. Friend's concern, I will see how the Housing Corporation views the matter.
Although the management of housing association grant has now been delegated almost entirely to the Housing Corporation, my Department was previously extensively involved in the details of new build and conversion schemes that attracted grant. Doubtless there were occasions when, for example, grant was withheld on work done when additional expenditure was incurred without proper consultation with the guardians of the public purse. Housing associations involved in building work with our

financial help need to understand that they must respect the same discipline over expenditure using public money as they will have to when spending the private funding that is increasingly flowing to them. Similarly, they cannot automatically assume that they can continue to make substantial calls on the public purse if they run into problems. They may need to take tough decisions on how to finance solutions from their own resources.
I will take seriously the information that my hon. Friend gave the House. My hon. Friend is a staunch supporter of the housing association movement and of the Government's policies as enshrined in the Housing Act 1988. For those reasons particularly, I am taking seriously what he said. The Government's provision of public money for housing associations and our responsibility for the nation's housing policy mean that we need to make sure that there is appropriate oversight of the process, and not just setting up and running housing associations. All too often, the anti-social activities of a minority are unreasonably used to condemn all private sector landlords, and I include housing associations.
We need to check that associations are not only properly motivated but will have all the financial, managerial, technical and social skills to manage and service property and investment and to serve their clients' needs. I repeat my assurance to my hon. Friend: when the Housing Corporation has carefully examined the points that he has raised, I will be in touch with him.
Question put and agreed to.
Adjourned accordingly at twelve minutes past Twelve o'clock